Correlation Between Stepan and Cedar Realty

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

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

Diversification Opportunities for Stepan and Cedar Realty

0.29

Correlation Coefficient

Stepan  Cedar Realty

Modest diversification

The 3 months correlation between Stepan and Cedar is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Cedar Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cedar Realty Trust 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 Cedar Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cedar Realty Trust has no effect on the direction of Stepan i.e., Stepan and Cedar Realty go up and down completely randomly.

Pair Corralation between Stepan and Cedar Realty

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Cedar Realty. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.57 times less risky than Cedar Realty. The stock trades about -0.03 of its potential returns per unit of risk. The Cedar Realty Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,079  in Cedar Realty Trust on September 15, 2024 and sell it today you would earn a total of  591.00  from holding Cedar Realty Trust or generate 54.77% return on investment over 90 days.

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

Stepan Company  vs.  Cedar Realty Trust

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 quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Cedar Realty Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cedar Realty Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat sluggish basic indicators, Cedar Realty sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Cedar Realty

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

The idea behind Stepan Company and Cedar Realty Trust 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.