Correlation Between Stepan and United Homes

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

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

Diversification Opportunities for Stepan and United Homes

0.67

Correlation Coefficient

Stepan  United Homes

Poor diversification

The 3 months correlation between Stepan and United is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and United Homes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Homes Group 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 United Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Homes Group has no effect on the direction of Stepan i.e., Stepan and United Homes go up and down completely randomly.

Pair Corralation between Stepan and United Homes

Considering the 90-day investment horizon Stepan is expected to generate 1.6 times less return on investment than United Homes. But when comparing it to its historical volatility, Stepan Company is 1.71 times less risky than United Homes. It trades about 0.08 of its potential returns per unit of risk. United Homes Group is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  577.00  in United Homes Group on September 4, 2024 and sell it today you would earn a total of  30.00  from holding United Homes Group or generate 5.2% return on investment over 90 days.

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

Stepan Company  vs.  United Homes Group

Stepan Company

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 3 (%) 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.

United Homes Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in United Homes Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, United Homes is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Stepan and United Homes

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

The idea behind Stepan Company and United Homes Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.