Correlation Between Stepan and National Vision

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

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

Diversification Opportunities for Stepan and National Vision

0.32

Correlation Coefficient

Stepan  National Vision

Weak diversification

The 3 months correlation between Stepan and National is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and National Vision Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Vision Holdings 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 National Vision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Vision Holdings has no effect on the direction of Stepan i.e., Stepan and National Vision go up and down completely randomly.

Pair Corralation between Stepan and National Vision

Considering the 90-day investment horizon Stepan Company is expected to generate 0.52 times more return on investment than National Vision. However, Stepan Company is 1.94 times less risky than National Vision. It trades about -0.04 of its potential returns per unit of risk. National Vision Holdings is currently generating about -0.05 per unit of risk. If you would invest  10,283  in Stepan Company on September 20, 2024 and sell it today you would lose (3,494) from holding Stepan Company or give up 33.98% 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.  National Vision Holdings

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 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.

National Vision Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Vision Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, National Vision is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Stepan and National Vision

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

The idea behind Stepan Company and National Vision Holdings 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 Commodity Directory module to find actively traded commodities issued by global exchanges.