Correlation Between Tandy Leather and Stepan
Can any of the company-specific risk be diversified away by investing in both Tandy Leather and Stepan 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 Tandy Leather and Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tandy Leather Factory and Stepan Company, you can compare the effects of market volatilities on Tandy Leather and Stepan 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 Tandy Leather with a short position of Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tandy Leather and Stepan.
Diversification Opportunities for Tandy Leather and Stepan
-0.23 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Tandy and Stepan is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Tandy Leather Factory and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Tandy Leather 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 Tandy Leather Factory are associated (or correlated) with Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Tandy Leather i.e., Tandy Leather and Stepan go up and down completely randomly.
Pair Corralation between Tandy Leather and Stepan
Considering the 90-day investment horizon Tandy Leather Factory is expected to under-perform the Stepan. But the stock apears to be less risky and, when comparing its historical volatility, Tandy Leather Factory is 1.23 times less risky than Stepan. The stock trades about -0.07 of its potential returns per unit of risk. The Stepan Company is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 7,387 in Stepan Company on August 29, 2024 and sell it today you would earn a total of 222.00 from holding Stepan Company or generate 3.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tandy Leather Factory vs. Stepan Company
Performance |
| Timeline |
| Tandy Leather Factory |
| Stepan Company |
Tandy Leather and Stepan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tandy Leather and Stepan
The main advantage of trading using opposite Tandy Leather and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tandy Leather position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan's long position.| Tandy Leather vs. Green River Gold | Tandy Leather vs. Dixons Carphone plc | Tandy Leather vs. Ceconomy AG ADR | Tandy Leather vs. Winmark |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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