Correlation Between Life Time and Stepan

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

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

Diversification Opportunities for Life Time and Stepan

0.4

Correlation Coefficient

Life Time  Stepan

Very weak diversification

The 3 months correlation between Life and Stepan is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Life Time Group and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Life Time 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 Life Time Group 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 Life Time i.e., Life Time and Stepan go up and down completely randomly.

Pair Corralation between Life Time and Stepan

Considering the 90-day investment horizon Life Time Group is expected to generate 1.31 times more return on investment than Stepan. However, Life Time is 1.31 times more volatile than Stepan Company. It trades about -0.27 of its potential returns per unit of risk. Stepan Company is currently generating about -0.5 per unit of risk. If you would invest  2,469  in Life Time Group on September 24, 2024 and sell it today you would lose (238.00) from holding Life Time Group or give up 9.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Life Time Group  vs.  Stepan Company

Life Time Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Life Time Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Stepan Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Life Time and Stepan

The main advantage of trading using opposite Life Time and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Life Time 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 Life Time Group 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.