Correlation Between Stepan and Knife River

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

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

Diversification Opportunities for Stepan and Knife River

0.74

Correlation Coefficient

Stepan  Knife River

Poor diversification

The 3 months correlation between Stepan and Knife is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River 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 Knife River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knife River has no effect on the direction of Stepan i.e., Stepan and Knife River go up and down completely randomly.

Pair Corralation between Stepan and Knife River

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Knife River. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.53 times less risky than Knife River. The stock trades about -0.1 of its potential returns per unit of risk. The Knife River is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  10,297  in Knife River on December 27, 2024 and sell it today you would lose (702.00) from holding Knife River or give up 6.82% 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.  Knife River

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.

Knife River

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knife River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Knife River is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Stepan and Knife River

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

The idea behind Stepan Company and Knife River 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.