Correlation Between Royalty Management and Stepan

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

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

Diversification Opportunities for Royalty Management and Stepan

0.31

Correlation Coefficient

Royalty Management  Stepan

Weak diversification

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

Pair Corralation between Royalty Management and Stepan

Given the investment horizon of 90 days Royalty Management Holding is expected to generate 1.68 times more return on investment than Stepan. However, Royalty Management is 1.68 times more volatile than Stepan Company. It trades about 0.06 of its potential returns per unit of risk. Stepan Company is currently generating about -0.12 per unit of risk. If you would invest  101.00  in Royalty Management Holding on December 28, 2024 and sell it today you would earn a total of  10.00  from holding Royalty Management Holding or generate 9.9% return on investment over 90 days.

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

Royalty Management Holding  vs.  Stepan Company

Royalty Management

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Management Holding are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady fundamental indicators, Royalty Management displayed solid returns over the last few months and may actually be approaching a breakup point.

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 Royalty Management and Stepan

The main advantage of trading using opposite Royalty Management and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royalty Management 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 Royalty Management Holding 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.