Correlation Between Stepan and Brunswick

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

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

Diversification Opportunities for Stepan and Brunswick

0.81

Correlation Coefficient

Stepan  Brunswick

Very poor diversification

The 3 months correlation between Stepan and Brunswick is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Brunswick in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brunswick 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 Brunswick. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brunswick has no effect on the direction of Stepan i.e., Stepan and Brunswick go up and down completely randomly.

Pair Corralation between Stepan and Brunswick

Considering the 90-day investment horizon Stepan Company is expected to generate 0.93 times more return on investment than Brunswick. However, Stepan Company is 1.07 times less risky than Brunswick. It trades about -0.11 of its potential returns per unit of risk. Brunswick is currently generating about -0.18 per unit of risk. If you would invest  7,686  in Stepan Company on September 28, 2024 and sell it today you would lose (978.00) from holding Stepan Company or give up 12.72% of portfolio value over 90 days.

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

Stepan Company  vs.  Brunswick

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 January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Brunswick

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brunswick has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Stepan and Brunswick

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

The idea behind Stepan Company and Brunswick 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.