Correlation Between Stepan and Tokyo Electron

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

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

Diversification Opportunities for Stepan and Tokyo Electron

0.15

Correlation Coefficient

Stepan  Tokyo Electron

Average diversification

The 3 months correlation between Stepan and Tokyo is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Tokyo Electron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron 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 Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of Stepan i.e., Stepan and Tokyo Electron go up and down completely randomly.

Pair Corralation between Stepan and Tokyo Electron

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Tokyo Electron. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.66 times less risky than Tokyo Electron. The stock trades about -0.03 of its potential returns per unit of risk. The Tokyo Electron is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,398  in Tokyo Electron on September 18, 2024 and sell it today you would earn a total of  5,896  from holding Tokyo Electron or generate 62.74% return on investment over 90 days.

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

Stepan Company  vs.  Tokyo Electron

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.

Tokyo Electron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokyo Electron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Tokyo Electron is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Stepan and Tokyo Electron

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

The idea behind Stepan Company and Tokyo Electron 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.