Correlation Between Stepan and ESH Acquisition

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

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

Diversification Opportunities for Stepan and ESH Acquisition

0.28

Correlation Coefficient

Stepan  ESH Acquisition

Modest diversification

The 3 months correlation between Stepan and ESH is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and ESH Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESH Acquisition Corp 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 ESH Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESH Acquisition Corp has no effect on the direction of Stepan i.e., Stepan and ESH Acquisition go up and down completely randomly.

Pair Corralation between Stepan and ESH Acquisition

Considering the 90-day investment horizon Stepan Company is expected to under-perform the ESH Acquisition. In addition to that, Stepan is 2.28 times more volatile than ESH Acquisition Corp. It trades about -0.1 of its total potential returns per unit of risk. ESH Acquisition Corp is currently generating about 0.0 per unit of volatility. If you would invest  1,077  in ESH Acquisition Corp on December 27, 2024 and sell it today you would lose (1.00) from holding ESH Acquisition Corp or give up 0.09% of portfolio value over 90 days.

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

Stepan Company  vs.  ESH Acquisition 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.

ESH Acquisition Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESH Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, ESH Acquisition is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stepan and ESH Acquisition

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

The idea behind Stepan Company and ESH Acquisition 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.