Correlation Between Definitive Healthcare and Stepan

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

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

Diversification Opportunities for Definitive Healthcare and Stepan

0.31

Correlation Coefficient

Definitive Healthcare  Stepan

Weak diversification

The 3 months correlation between Definitive and Stepan is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Definitive Healthcare Corp and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Definitive Healthcare 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 Definitive Healthcare Corp 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 Definitive Healthcare i.e., Definitive Healthcare and Stepan go up and down completely randomly.

Pair Corralation between Definitive Healthcare and Stepan

Allowing for the 90-day total investment horizon Definitive Healthcare Corp is expected to generate 1.47 times more return on investment than Stepan. However, Definitive Healthcare is 1.47 times more volatile than Stepan Company. It trades about 0.02 of its potential returns per unit of risk. Stepan Company is currently generating about 0.01 per unit of risk. If you would invest  444.00  in Definitive Healthcare Corp on September 14, 2024 and sell it today you would earn a total of  6.00  from holding Definitive Healthcare Corp or generate 1.35% return on investment over 90 days.

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

Definitive Healthcare Corp  vs.  Stepan Company

Definitive Healthcare

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Definitive Healthcare Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical indicators, Definitive Healthcare is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Stepan Company

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Definitive Healthcare and Stepan

The main advantage of trading using opposite Definitive Healthcare and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Definitive Healthcare 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 Definitive Healthcare Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.