Correlation Between Stepstone and Better Home

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

By analyzing existing cross correlation between Stepstone Group and Better Home Finance, you can compare the effects of market volatilities on Stepstone and Better Home 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 Stepstone with a short position of Better Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepstone and Better Home.

Diversification Opportunities for Stepstone and Better Home

-0.05

Correlation Coefficient

Stepstone  Better Home

Good diversification

The 3 months correlation between Stepstone and Better is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Better Home Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Better Home Finance and Stepstone 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 Stepstone Group are associated (or correlated) with Better Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Better Home Finance has no effect on the direction of Stepstone i.e., Stepstone and Better Home go up and down completely randomly.

Pair Corralation between Stepstone and Better Home

Given the investment horizon of 90 days Stepstone is expected to generate 11.55 times less return on investment than Better Home. But when comparing it to its historical volatility, Stepstone Group is 7.36 times less risky than Better Home. It trades about 0.13 of its potential returns per unit of risk. Better Home Finance is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  6.10  in Better Home Finance on September 14, 2024 and sell it today you would earn a total of  4.90  from holding Better Home Finance or generate 80.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	50.79%
Values	Daily Returns

Stepstone Group  vs.  Better Home Finance

Stepstone Group

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Stepstone reported solid returns over the last few months and may actually be approaching a breakup point.

Better Home Finance

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Better Home Finance are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Better Home showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepstone and Better Home

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

The idea behind Stepstone Group and Better Home Finance 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.