Correlation Between Stepan and Old Dominion

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

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

Diversification Opportunities for Stepan and Old Dominion

0.51

Correlation Coefficient

Stepan  Old Dominion

Very weak diversification

The 3 months correlation between Stepan and Old is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Old Dominion Freight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Dominion Freight 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 Old Dominion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Dominion Freight has no effect on the direction of Stepan i.e., Stepan and Old Dominion go up and down completely randomly.

Pair Corralation between Stepan and Old Dominion

Considering the 90-day investment horizon Stepan is expected to generate 4.5 times less return on investment than Old Dominion. But when comparing it to its historical volatility, Stepan Company is 1.32 times less risky than Old Dominion. It trades about 0.03 of its potential returns per unit of risk. Old Dominion Freight is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  19,452  in Old Dominion Freight on September 1, 2024 and sell it today you would earn a total of  3,062  from holding Old Dominion Freight or generate 15.74% return on investment over 90 days.

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

Stepan Company  vs.  Old Dominion Freight

Stepan Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Old Dominion Freight

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Old Dominion Freight are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Old Dominion disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Old Dominion

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

The idea behind Stepan Company and Old Dominion Freight 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.