Correlation Between Modine Manufacturing and Stepan

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

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

Diversification Opportunities for Modine Manufacturing and Stepan

0.61

Correlation Coefficient

Modine Manufacturing  Stepan

Poor diversification

The 3 months correlation between Modine and Stepan is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Modine Manufacturing and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Modine Manufacturing 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 Modine Manufacturing 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 Modine Manufacturing i.e., Modine Manufacturing and Stepan go up and down completely randomly.

Pair Corralation between Modine Manufacturing and Stepan

Considering the 90-day investment horizon Modine Manufacturing is expected to generate 2.0 times more return on investment than Stepan. However, Modine Manufacturing is 2.0 times more volatile than Stepan Company. It trades about 0.11 of its potential returns per unit of risk. Stepan Company is currently generating about -0.05 per unit of risk. If you would invest  2,244  in Modine Manufacturing on October 7, 2024 and sell it today you would earn a total of  10,000  from holding Modine Manufacturing or generate 445.63% return on investment over 90 days.

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

Modine Manufacturing  vs.  Stepan Company

Modine Manufacturing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Modine Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Modine Manufacturing is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Modine Manufacturing and Stepan

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

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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.