Correlation Between Stepan and Definitive Healthcare

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

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

Diversification Opportunities for Stepan and Definitive Healthcare

0.63

Correlation Coefficient

Stepan  Definitive Healthcare

Poor diversification

The 3 months correlation between Stepan and Definitive is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Definitive Healthcare Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Definitive Healthcare 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 Definitive Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Definitive Healthcare has no effect on the direction of Stepan i.e., Stepan and Definitive Healthcare go up and down completely randomly.

Pair Corralation between Stepan and Definitive Healthcare

Considering the 90-day investment horizon Stepan Company is expected to generate 0.31 times more return on investment than Definitive Healthcare. However, Stepan Company is 3.27 times less risky than Definitive Healthcare. It trades about -0.1 of its potential returns per unit of risk. Definitive Healthcare Corp is currently generating about -0.06 per unit of risk. If you would invest  6,421  in Stepan Company on December 28, 2024 and sell it today you would lose (700.00) from holding Stepan Company or give up 10.9% 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.  Definitive Healthcare Corp

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.

Definitive Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Definitive Healthcare Corp 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 technical indicators remain fairly strong which may send shares a bit higher in April 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Stepan and Definitive Healthcare

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

The idea behind Stepan Company and Definitive Healthcare Corp 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.