Correlation Between Playa Hotels and Stepan

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

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

Diversification Opportunities for Playa Hotels and Stepan

-0.15

Correlation Coefficient

Playa Hotels  Stepan

Good diversification

The 3 months correlation between Playa and Stepan is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Playa Hotels 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 Playa Hotels Resorts 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 Playa Hotels i.e., Playa Hotels and Stepan go up and down completely randomly.

Pair Corralation between Playa Hotels and Stepan

Given the investment horizon of 90 days Playa Hotels Resorts is expected to generate 4.68 times more return on investment than Stepan. However, Playa Hotels is 4.68 times more volatile than Stepan Company. It trades about 0.19 of its potential returns per unit of risk. Stepan Company is currently generating about -0.5 per unit of risk. If you would invest  990.00  in Playa Hotels Resorts on September 24, 2024 and sell it today you would earn a total of  245.00  from holding Playa Hotels Resorts or generate 24.75% return on investment over 90 days.

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

Playa Hotels Resorts  vs.  Stepan Company

Playa Hotels Resorts

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Playa Hotels sustained solid returns over the last few months and may actually be approaching a breakup point.

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 Playa Hotels and Stepan

The main advantage of trading using opposite Playa Hotels and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Playa Hotels 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 Playa Hotels Resorts 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.