Correlation Between Stepan and UL Solutions
Can any of the company-specific risk be diversified away by investing in both Stepan and UL Solutions 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 UL Solutions into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and UL Solutions, you can compare the effects of market volatilities on Stepan and UL Solutions 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 UL Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and UL Solutions.
Diversification Opportunities for Stepan and UL Solutions
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Stepan and ULS is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and UL Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UL Solutions 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 UL Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UL Solutions has no effect on the direction of Stepan i.e., Stepan and UL Solutions go up and down completely randomly.
Pair Corralation between Stepan and UL Solutions
Considering the 90-day investment horizon Stepan is expected to generate 1.0 times less return on investment than UL Solutions. In addition to that, Stepan is 1.62 times more volatile than UL Solutions. It trades about 0.06 of its total potential returns per unit of risk. UL Solutions is currently generating about 0.1 per unit of volatility. If you would invest 5,259 in UL Solutions on August 29, 2024 and sell it today you would earn a total of 179.00 from holding UL Solutions or generate 3.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. UL Solutions
Performance |
| Timeline |
| Stepan Company |
| UL Solutions |
Stepan and UL Solutions Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and UL Solutions
The main advantage of trading using opposite Stepan and UL Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, UL Solutions 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 UL Solutions will offset losses from the drop in UL Solutions' long position.The idea behind Stepan Company and UL Solutions 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.| UL Solutions vs. Sapiens International | UL Solutions vs. NextNav Warrant | UL Solutions vs. Tower Semiconductor | UL Solutions vs. Micron Technology |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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