Correlation Between Stepan and Old Republic

Can any of the company-specific risk be diversified away by investing in both Stepan and Old Republic 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 Republic 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 Republic International, you can compare the effects of market volatilities on Stepan and Old Republic 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 Republic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Old Republic.

Diversification Opportunities for Stepan and Old Republic

0.26

Correlation Coefficient

Stepan  Old Republic

Modest diversification

The 3 months correlation between Stepan and Old is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Old Republic International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Republic Interna 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 Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Republic Interna has no effect on the direction of Stepan i.e., Stepan and Old Republic go up and down completely randomly.

Pair Corralation between Stepan and Old Republic

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Old Republic. In addition to that, Stepan is 1.48 times more volatile than Old Republic International. It trades about -0.03 of its total potential returns per unit of risk. Old Republic International is currently generating about 0.09 per unit of volatility. If you would invest  2,241  in Old Republic International on September 18, 2024 and sell it today you would earn a total of  1,438  from holding Old Republic International or generate 64.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Stepan Company  vs.  Old Republic International

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 quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Old Republic Interna

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Old Republic International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Old Republic is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Stepan and Old Republic

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

The idea behind Stepan Company and Old Republic International 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.