Correlation Between Stepan and Old Dominion
Can any of the company-specific risk be diversified away by investing in both Stepan and Old Dominion at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Stepan and Old Dominion into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Old Dominion Freight, you can compare the effects of market volatilities on Stepan and Old Dominion and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Stepan with a short position of Old Dominion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Old Dominion.
Diversification Opportunities for Stepan and Old Dominion
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Stepan and Old is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Old Dominion Freight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Dominion Freight and Stepan is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Stepan Company are associated (or correlated) with Old Dominion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Dominion Freight has no effect on the direction of Stepan i.e., Stepan and Old Dominion go up and down completely randomly.
Pair Corralation between Stepan and Old Dominion
Considering the 90-day investment horizon Stepan is expected to generate 3.74 times less return on investment than Old Dominion. But when comparing it to its historical volatility, Stepan Company is 1.2 times less risky than Old Dominion. It trades about 0.05 of its potential returns per unit of risk. Old Dominion Freight is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 20,382 in Old Dominion Freight on August 31, 2024 and sell it today you would earn a total of 2,029 from holding Old Dominion Freight or generate 9.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Old Dominion Freight
Performance |
| Timeline |
| Stepan Company |
| Old Dominion Freight |
Stepan and Old Dominion Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Old Dominion
The main advantage of trading using opposite Stepan and Old Dominion positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Old Dominion can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Old Dominion will offset losses from the drop in Old Dominion's long position.The idea behind Stepan Company and Old Dominion Freight pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Old Dominion vs. ArcBest Corp | Old Dominion vs. Marten Transport | Old Dominion vs. Werner Enterprises | Old Dominion vs. Knight Transportation |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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