Correlation Between Stepan and Grocery Outlet

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

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

Diversification Opportunities for Stepan and Grocery Outlet

0.7

Correlation Coefficient

Stepan  Grocery Outlet

Poor diversification

The 3 months correlation between Stepan and Grocery is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Grocery Outlet Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grocery Outlet Holding 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 Grocery Outlet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grocery Outlet Holding has no effect on the direction of Stepan i.e., Stepan and Grocery Outlet go up and down completely randomly.

Pair Corralation between Stepan and Grocery Outlet

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Grocery Outlet. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 2.88 times less risky than Grocery Outlet. The stock trades about -0.1 of its potential returns per unit of risk. The Grocery Outlet Holding is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,505  in Grocery Outlet Holding on December 28, 2024 and sell it today you would lose (208.00) from holding Grocery Outlet Holding or give up 13.82% 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.  Grocery Outlet Holding

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 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.

Grocery Outlet Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Grocery Outlet Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Grocery Outlet is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Stepan and Grocery Outlet

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

The idea behind Stepan Company and Grocery Outlet Holding 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.