Correlation Between Stepan and Franchise

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

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

Diversification Opportunities for Stepan and Franchise

0.0

Correlation Coefficient

Stepan  Franchise

Pay attention - limited upside

The 3 months correlation between Stepan and Franchise is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Franchise Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franchise Group 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 Franchise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franchise Group has no effect on the direction of Stepan i.e., Stepan and Franchise go up and down completely randomly.

Pair Corralation between Stepan and Franchise

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Franchise. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.17 times less risky than Franchise. The stock trades about -0.05 of its potential returns per unit of risk. The Franchise Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,153  in Franchise Group on October 13, 2024 and sell it today you would earn a total of  340.00  from holding Franchise Group or generate 15.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	25.66%
Values	Daily Returns

Stepan Company  vs.  Franchise Group

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 weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Franchise Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franchise Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Franchise is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Stepan and Franchise

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

The idea behind Stepan Company and Franchise Group 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.

Check out your portfolio center.

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 Channel module to use Commodity Channel Index to analyze current equity momentum.