Correlation Between Stepan and Oil Dri

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

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

Diversification Opportunities for Stepan and Oil Dri

-0.44

Correlation Coefficient

Stepan  Oil Dri

Very good diversification

The 3 months correlation between Stepan and Oil is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Oil Dri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Dri 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 Oil Dri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Dri has no effect on the direction of Stepan i.e., Stepan and Oil Dri go up and down completely randomly.

Pair Corralation between Stepan and Oil Dri

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Oil Dri. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 3.01 times less risky than Oil Dri. The stock trades about -0.48 of its potential returns per unit of risk. The Oil Dri is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  6,980  in Oil Dri on September 24, 2024 and sell it today you would earn a total of  1,801  from holding Oil Dri or generate 25.8% return on investment over 90 days.

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

Stepan Company  vs.  Oil Dri

Stepan Company

Risk-Adjusted Performance

0 of 100

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 unsteady 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.

Oil Dri

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Dri are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Oil Dri exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Oil Dri

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

The idea behind Stepan Company and Oil Dri 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.