Correlation Between Stepan and Esperion Therapeutics

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

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

Diversification Opportunities for Stepan and Esperion Therapeutics

0.77

Correlation Coefficient

Stepan  Esperion Therapeutics

Poor diversification

The 3 months correlation between Stepan and Esperion is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Esperion Therapeutics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Esperion Therapeutics 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 Esperion Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Esperion Therapeutics has no effect on the direction of Stepan i.e., Stepan and Esperion Therapeutics go up and down completely randomly.

Pair Corralation between Stepan and Esperion Therapeutics

Considering the 90-day investment horizon Stepan Company is expected to generate 0.51 times more return on investment than Esperion Therapeutics. However, Stepan Company is 1.96 times less risky than Esperion Therapeutics. It trades about -0.1 of its potential returns per unit of risk. Esperion Therapeutics is currently generating about -0.12 per unit of risk. If you would invest  6,421  in Stepan Company on December 29, 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.  Esperion Therapeutics

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 unsteady 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.

Esperion Therapeutics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Esperion Therapeutics has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Stepan and Esperion Therapeutics

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

The idea behind Stepan Company and Esperion Therapeutics 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.