Correlation Between Stepan and Ambev SA

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

By analyzing existing cross correlation between Stepan Company and Ambev SA ADR, you can compare the effects of market volatilities on Stepan and Ambev SA 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 Ambev SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Ambev SA.

Diversification Opportunities for Stepan and Ambev SA

0.7

Correlation Coefficient

Stepan  Ambev SA

Poor diversification

The 3 months correlation between Stepan and Ambev is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Ambev SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambev SA ADR 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 Ambev SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambev SA ADR has no effect on the direction of Stepan i.e., Stepan and Ambev SA go up and down completely randomly.

Pair Corralation between Stepan and Ambev SA

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Ambev SA. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.48 times less risky than Ambev SA. The stock trades about -0.43 of its potential returns per unit of risk. The Ambev SA ADR is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  209.00  in Ambev SA ADR on October 7, 2024 and sell it today you would lose (32.00) from holding Ambev SA ADR or give up 15.31% of portfolio value over 90 days.

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

Stepan Company  vs.  Ambev SA ADR

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.

Ambev SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ambev SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Stepan and Ambev SA

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

The idea behind Stepan Company and Ambev SA ADR 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.