Correlation Between Stepan and OCCIDENTAL

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

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

Diversification Opportunities for Stepan and OCCIDENTAL

0.32

Correlation Coefficient

Stepan  OCCIDENTAL

Weak diversification

The 3 months correlation between Stepan and OCCIDENTAL is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and OCCIDENTAL PETE P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OCCIDENTAL PETE P 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 OCCIDENTAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OCCIDENTAL PETE P has no effect on the direction of Stepan i.e., Stepan and OCCIDENTAL go up and down completely randomly.

Pair Corralation between Stepan and OCCIDENTAL

Considering the 90-day investment horizon Stepan Company is expected to under-perform the OCCIDENTAL. In addition to that, Stepan is 1.75 times more volatile than OCCIDENTAL PETE P. It trades about -0.24 of its total potential returns per unit of risk. OCCIDENTAL PETE P is currently generating about 0.06 per unit of volatility. If you would invest  7,873  in OCCIDENTAL PETE P on December 4, 2024 and sell it today you would earn a total of  244.00  from holding OCCIDENTAL PETE P or generate 3.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.92%
Values	Daily Returns

Stepan Company  vs.  OCCIDENTAL PETE P

Stepan Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

OCCIDENTAL PETE P

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in OCCIDENTAL PETE P are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, OCCIDENTAL is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stepan and OCCIDENTAL

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

The idea behind Stepan Company and OCCIDENTAL PETE P 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.