Correlation Between Stepan and FEDEX

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Can any of the company-specific risk be diversified away by investing in both Stepan and FEDEX 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 FEDEX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and FEDEX P 42, you can compare the effects of market volatilities on Stepan and FEDEX 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 FEDEX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and FEDEX.

Diversification Opportunities for Stepan and FEDEX

StepanFEDEXDiversified AwayStepanFEDEXDiversified Away100%
0.02
  Correlation Coefficient

Significant diversification

The 3 months correlation between Stepan and FEDEX is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and FEDEX P 42 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FEDEX P 42 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 FEDEX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FEDEX P 42 has no effect on the direction of Stepan i.e., Stepan and FEDEX go up and down completely randomly.

Pair Corralation between Stepan and FEDEX

Considering the 90-day investment horizon Stepan Company is expected to under-perform the FEDEX. In addition to that, Stepan is 1.08 times more volatile than FEDEX P 42. It trades about -0.09 of its total potential returns per unit of risk. FEDEX P 42 is currently generating about -0.05 per unit of volatility. If you would invest  10,009  in FEDEX P 42 on September 25, 2024 and sell it today you would lose (593.00) from holding FEDEX P 42 or give up 5.92% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy92.19%
ValuesDaily Returns

Stepan Company  vs.  FEDEX P 42

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -505
JavaScript chart by amCharts 3.21.15SCL 31428XBR6
       Timeline  
Stepan Company 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 unsteady 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.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec666870727476788082
FEDEX P 42 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days FEDEX P 42 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, FEDEX is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.152402402428224024949596979899100101102

Stepan and FEDEX Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.02-2.26-1.5-0.75-0.01260.671.362.052.743.43 0.070.080.090.100.110.12
JavaScript chart by amCharts 3.21.15SCL 31428XBR6
       Returns  

Pair Trading with Stepan and FEDEX

The main advantage of trading using opposite Stepan and FEDEX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, FEDEX 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 FEDEX will offset losses from the drop in FEDEX's long position.
The idea behind Stepan Company and FEDEX P 42 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.

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