Correlation Between Stepan and LB Foster

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

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

Diversification Opportunities for Stepan and LB Foster

0.72

Correlation Coefficient

Stepan  LB Foster

Poor diversification

The 3 months correlation between Stepan and FSTR is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster 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 LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of Stepan i.e., Stepan and LB Foster go up and down completely randomly.

Pair Corralation between Stepan and LB Foster

Considering the 90-day investment horizon Stepan Company is expected to generate 0.65 times more return on investment than LB Foster. However, Stepan Company is 1.54 times less risky than LB Foster. It trades about -0.12 of its potential returns per unit of risk. LB Foster is currently generating about -0.14 per unit of risk. If you would invest  6,666  in Stepan Company on December 26, 2024 and sell it today you would lose (928.50) from holding Stepan Company or give up 13.93% 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.  LB Foster

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

LB Foster

Risk-Adjusted Performance

Very Weak

Over the last 90 days LB Foster 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 LB Foster

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

The idea behind Stepan Company and LB Foster 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.