Correlation Between Stepan and Verra Mobility

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

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

Diversification Opportunities for Stepan and Verra Mobility

-0.1

Correlation Coefficient

Stepan  Verra Mobility

Good diversification

The 3 months correlation between Stepan and Verra is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Verra Mobility Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verra Mobility Corp 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 Verra Mobility. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verra Mobility Corp has no effect on the direction of Stepan i.e., Stepan and Verra Mobility go up and down completely randomly.

Pair Corralation between Stepan and Verra Mobility

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Verra Mobility. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.04 times less risky than Verra Mobility. The stock trades about -0.04 of its potential returns per unit of risk. The Verra Mobility Corp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,388  in Verra Mobility Corp on September 18, 2024 and sell it today you would earn a total of  43.00  from holding Verra Mobility Corp or generate 1.8% return on investment over 90 days.

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

Stepan Company  vs.  Verra Mobility Corp

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.

Verra Mobility Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verra Mobility Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Stepan and Verra Mobility

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

The idea behind Stepan Company and Verra Mobility Corp 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.