Correlation Between National Beverage and Stepan

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

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

Diversification Opportunities for National Beverage and Stepan

0.65

Correlation Coefficient

National Beverage  Stepan

Poor diversification

The 3 months correlation between National and Stepan is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding National Beverage Corp and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and National Beverage 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 National Beverage 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 National Beverage i.e., National Beverage and Stepan go up and down completely randomly.

Pair Corralation between National Beverage and Stepan

Given the investment horizon of 90 days National Beverage Corp is expected to generate 0.85 times more return on investment than Stepan. However, National Beverage Corp is 1.17 times less risky than Stepan. It trades about -0.01 of its potential returns per unit of risk. Stepan Company is currently generating about -0.12 per unit of risk. If you would invest  4,250  in National Beverage Corp on December 28, 2024 and sell it today you would lose (61.00) from holding National Beverage Corp or give up 1.44% of portfolio value over 90 days.

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

National Beverage Corp  vs.  Stepan Company

National Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, National Beverage is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Stepan Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with National Beverage and Stepan

The main advantage of trading using opposite National Beverage and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Beverage 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 National Beverage 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.