Correlation Between Stepan and Valhi

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

Diversification Opportunities for Stepan and Valhi

0.46
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Stepan and Valhi is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of Stepan i.e., Stepan and Valhi go up and down completely randomly.

Pair Corralation between Stepan and Valhi

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Valhi. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 2.74 times less risky than Valhi. The stock trades about -0.09 of its potential returns per unit of risk. The Valhi Inc is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,935  in Valhi Inc on October 3, 2024 and sell it today you would lose (596.00) from holding Valhi Inc or give up 20.31% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Stepan Company  vs.  Valhi Inc

 Performance 
       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 weak performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.
Valhi Inc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Stepan and Valhi Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Stepan and Valhi

The main advantage of trading using opposite Stepan and Valhi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Valhi 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 Valhi will offset losses from the drop in Valhi's long position.
The idea behind Stepan Company and Valhi Inc 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.
Check out your portfolio center.
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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