Correlation Between Stepan and Aeye

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

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

Diversification Opportunities for Stepan and Aeye

0.42

Correlation Coefficient

Stepan  Aeye

Very weak diversification

The 3 months correlation between Stepan and Aeye is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Aeye Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aeye Inc 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 Aeye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aeye Inc has no effect on the direction of Stepan i.e., Stepan and Aeye go up and down completely randomly.

Pair Corralation between Stepan and Aeye

Considering the 90-day investment horizon Stepan Company is expected to generate 0.17 times more return on investment than Aeye. However, Stepan Company is 6.05 times less risky than Aeye. It trades about -0.1 of its potential returns per unit of risk. Aeye Inc is currently generating about -0.11 per unit of risk. If you would invest  6,485  in Stepan Company on December 27, 2024 and sell it today you would lose (756.00) from holding Stepan Company or give up 11.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Stepan Company  vs.  Aeye Inc

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.

Aeye Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aeye Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's fundamental 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 Aeye

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

The idea behind Stepan Company and Aeye Inc 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 Commodity Directory module to find actively traded commodities issued by global exchanges.