Correlation Between Stepan and Luxfer Holdings

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

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

Diversification Opportunities for Stepan and Luxfer Holdings

0.59

Correlation Coefficient

Stepan  Luxfer Holdings

Very weak diversification

The 3 months correlation between Stepan and Luxfer is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Luxfer Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luxfer Holdings PLC 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 Luxfer Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luxfer Holdings PLC has no effect on the direction of Stepan i.e., Stepan and Luxfer Holdings go up and down completely randomly.

Pair Corralation between Stepan and Luxfer Holdings

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Luxfer Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.22 times less risky than Luxfer Holdings. The stock trades about -0.1 of its potential returns per unit of risk. The Luxfer Holdings PLC is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,313  in Luxfer Holdings PLC on December 28, 2024 and sell it today you would lose (131.00) from holding Luxfer Holdings PLC or give up 9.98% 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.  Luxfer Holdings PLC

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.

Luxfer Holdings PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Luxfer Holdings PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's technical and fundamental 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 Luxfer Holdings

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

The idea behind Stepan Company and Luxfer Holdings PLC 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.