Correlation Between Stepan and Babcock Wilcox

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

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

Diversification Opportunities for Stepan and Babcock Wilcox

0.07

Correlation Coefficient

Stepan  Babcock Wilcox

Significant diversification

The 3 months correlation between Stepan and Babcock is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter 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 Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Stepan i.e., Stepan and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Stepan and Babcock Wilcox

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Babcock Wilcox. In addition to that, Stepan is 1.13 times more volatile than Babcock Wilcox Enterprises. It trades about -0.09 of its total potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about -0.03 per unit of volatility. If you would invest  2,145  in Babcock Wilcox Enterprises on September 14, 2024 and sell it today you would lose (15.00) from holding Babcock Wilcox Enterprises or give up 0.7% of portfolio value over 90 days.

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

Stepan Company  vs.  Babcock Wilcox Enterprises

Stepan Company

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Babcock Wilcox Enter

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Babcock Wilcox Enterprises are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Babcock Wilcox is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stepan and Babcock Wilcox

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

The idea behind Stepan Company and Babcock Wilcox Enterprises 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.