Correlation Between Stepan and PGE Corp
Can any of the company-specific risk be diversified away by investing in both Stepan and PGE Corp 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 PGE Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and PGE Corp, you can compare the effects of market volatilities on Stepan and PGE Corp 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 PGE Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and PGE Corp.
Diversification Opportunities for Stepan and PGE Corp
Very poor diversification
The 3 months correlation between Stepan and PGE is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and PGE Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PGE Corp 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 PGE Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PGE Corp has no effect on the direction of Stepan i.e., Stepan and PGE Corp go up and down completely randomly.
Pair Corralation between Stepan and PGE Corp
Considering the 90-day investment horizon Stepan Company is expected to under-perform the PGE Corp. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.1 times less risky than PGE Corp. The stock trades about -0.11 of its potential returns per unit of risk. The PGE Corp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 1,629 in PGE Corp on November 27, 2024 and sell it today you would lose (28.00) from holding PGE Corp or give up 1.72% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. PGE Corp
Performance |
| Timeline |
| Stepan Company |
| PGE Corp |
Stepan and PGE Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and PGE Corp
The main advantage of trading using opposite Stepan and PGE Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, PGE Corp 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 PGE Corp will offset losses from the drop in PGE Corp's long position.The idea behind Stepan Company and PGE Corp 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.| PGE Corp vs. Consolidated Edison | PGE Corp vs. Southern Company | PGE Corp vs. Entergy | PGE Corp vs. Pinnacle West Capital |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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