Correlation Between Stepan and Olympic Steel
Can any of the company-specific risk be diversified away by investing in both Stepan and Olympic Steel 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 Olympic Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Olympic Steel, you can compare the effects of market volatilities on Stepan and Olympic Steel 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 Olympic Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Olympic Steel.
Diversification Opportunities for Stepan and Olympic Steel
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Stepan and Olympic is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel 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 Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of Stepan i.e., Stepan and Olympic Steel go up and down completely randomly.
Pair Corralation between Stepan and Olympic Steel
Considering the 90-day investment horizon Stepan is expected to generate 2.48 times less return on investment than Olympic Steel. But when comparing it to its historical volatility, Stepan Company is 1.55 times less risky than Olympic Steel. It trades about 0.14 of its potential returns per unit of risk. Olympic Steel is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 3,588 in Olympic Steel on September 1, 2024 and sell it today you would earn a total of 640.00 from holding Olympic Steel or generate 17.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Olympic Steel
Performance |
| Timeline |
| Stepan Company |
| Olympic Steel |
Stepan and Olympic Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Olympic Steel
The main advantage of trading using opposite Stepan and Olympic Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Olympic Steel 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 Olympic Steel will offset losses from the drop in Olympic Steel's long position.The idea behind Stepan Company and Olympic Steel 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.| Olympic Steel vs. Fortitude Gold Corp | Olympic Steel vs. New Gold | Olympic Steel vs. Galiano Gold | Olympic Steel vs. GoldMining |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
Other Complementary Tools
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| Commodity Directory Find actively traded commodities issued by global exchanges | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Sync Your Broker Sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors. |