Correlation Between Stepan and Anglo American

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

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

Diversification Opportunities for Stepan and Anglo American

0.1

Correlation Coefficient

Stepan  Anglo American

Average diversification

The 3 months correlation between Stepan and Anglo is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Anglo American Platinum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American Platinum 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 Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American Platinum has no effect on the direction of Stepan i.e., Stepan and Anglo American go up and down completely randomly.

Pair Corralation between Stepan and Anglo American

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Anglo American. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 3.06 times less risky than Anglo American. The stock trades about -0.1 of its potential returns per unit of risk. The Anglo American Platinum is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,942  in Anglo American Platinum on December 28, 2024 and sell it today you would earn a total of  1,251  from holding Anglo American Platinum or generate 42.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.33%
Values	Daily Returns

Stepan Company  vs.  Anglo American Platinum

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 latest weak 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.

Anglo American Platinum

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American Platinum are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Anglo American reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Anglo American

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

The idea behind Stepan Company and Anglo American Platinum 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.