Correlation Between Stepan and Abcellera Biologics

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

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

Diversification Opportunities for Stepan and Abcellera Biologics

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Correlation Coefficient

Stepan  Abcellera Biologics

Pay attention - limited upside

The 3 months correlation between Stepan and Abcellera is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Abcellera Biologics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abcellera Biologics and Stepan 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 Stepan Company are associated (or correlated) with Abcellera Biologics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abcellera Biologics has no effect on the direction of Stepan i.e., Stepan and Abcellera Biologics go up and down completely randomly.

Pair Corralation between Stepan and Abcellera Biologics

Considering the 90-day investment horizon Stepan Company is expected to generate 0.52 times more return on investment than Abcellera Biologics. However, Stepan Company is 1.91 times less risky than Abcellera Biologics. It trades about -0.04 of its potential returns per unit of risk. Abcellera Biologics is currently generating about -0.05 per unit of risk. If you would invest  10,060  in Stepan Company on September 24, 2024 and sell it today you would lose (3,348) from holding Stepan Company or give up 33.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Stepan Company  vs.  Abcellera Biologics

Stepan Company

Risk-Adjusted Performance

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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.

Abcellera Biologics

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Abcellera Biologics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental indicators, Abcellera Biologics disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Abcellera Biologics

The main advantage of trading using opposite Stepan and Abcellera Biologics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Abcellera Biologics 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 Abcellera Biologics will offset losses from the drop in Abcellera Biologics' long position.

The idea behind Stepan Company and Abcellera Biologics 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.