Correlation Between Air Products and Stepan

Can any of the company-specific risk be diversified away by investing in both Air Products 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 Air Products and Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air Products and and Stepan Company, you can compare the effects of market volatilities on Air Products 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 Air Products with a short position of Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Products and Stepan.

Diversification Opportunities for Air Products and Stepan

0.08

Correlation Coefficient

Air Products  Stepan

Significant diversification

The 3 months correlation between Air and Stepan is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Air Products and and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Air Products 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 Air Products and 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 Air Products i.e., Air Products and Stepan go up and down completely randomly.

Pair Corralation between Air Products and Stepan

Considering the 90-day investment horizon Air Products and is expected to generate 0.37 times more return on investment than Stepan. However, Air Products and is 2.74 times less risky than Stepan. It trades about 0.52 of its potential returns per unit of risk. Stepan Company is currently generating about 0.14 per unit of risk. If you would invest  30,609  in Air Products and on September 3, 2024 and sell it today you would earn a total of  2,953  from holding Air Products and or generate 9.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Air Products and  vs.  Stepan Company

Air Products

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Air Products exhibited solid returns over the last few months and may actually be approaching a breakup point.

Stepan Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Air Products and Stepan

The main advantage of trading using opposite Air Products and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Products 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.

The idea behind Air Products and and Stepan Company 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.