Correlation Between Stepan and Innospec

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

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

Diversification Opportunities for Stepan and Innospec

0.78

Correlation Coefficient

Stepan  Innospec

Poor diversification

The 3 months correlation between Stepan and Innospec is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec 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 Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Stepan i.e., Stepan and Innospec go up and down completely randomly.

Pair Corralation between Stepan and Innospec

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Innospec. In addition to that, Stepan is 1.06 times more volatile than Innospec. It trades about -0.12 of its total potential returns per unit of risk. Innospec is currently generating about -0.1 per unit of volatility. If you would invest  10,997  in Innospec on December 29, 2024 and sell it today you would lose (1,258) from holding Innospec or give up 11.44% 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.  Innospec

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 unsteady 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.

Innospec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innospec has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Stepan and Innospec

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

The idea behind Stepan Company and Innospec 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.