Correlation Between Stepan and Sonoco Products

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

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

Diversification Opportunities for Stepan and Sonoco Products

0.79

Correlation Coefficient

Stepan  Sonoco Products

Poor diversification

The 3 months correlation between Stepan and Sonoco is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Sonoco Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonoco Products 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 Sonoco Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonoco Products has no effect on the direction of Stepan i.e., Stepan and Sonoco Products go up and down completely randomly.

Pair Corralation between Stepan and Sonoco Products

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Sonoco Products. In addition to that, Stepan is 1.39 times more volatile than Sonoco Products. It trades about -0.05 of its total potential returns per unit of risk. Sonoco Products is currently generating about -0.02 per unit of volatility. If you would invest  5,685  in Sonoco Products on October 23, 2024 and sell it today you would lose (910.00) from holding Sonoco Products or give up 16.01% of portfolio value over 90 days.

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

Stepan Company  vs.  Sonoco Products

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 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.

Sonoco Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonoco Products has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Stepan and Sonoco Products

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

The idea behind Stepan Company and Sonoco Products 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.