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
Poor diversification
The 3 months correlation between Stepan and FSTR is 0.6. 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 under-perform the LB Foster. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.31 times less risky than LB Foster. The stock trades about -0.16 of its potential returns per unit of risk. The LB Foster is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest 2,725 in LB Foster on December 5, 2024 and sell it today you would lose (149.00) from holding LB Foster or give up 5.47% 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
Performance |
Timeline |
Stepan Company |
LB Foster |
Stepan and LB Foster Volatility Contrast
Predicted Return Density |
Returns |
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.LB Foster vs. Trinity Industries | LB Foster vs. Freightcar America | LB Foster vs. Westinghouse Air Brake | LB Foster vs. Norfolk Southern |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
Other Complementary Tools
Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets | |
Sectors List of equity sectors categorizing publicly traded companies based on their primary business activities | |
Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins | |
Bonds Directory Find actively traded corporate debentures issued by US companies | |
Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon |