Correlation Between Stepstone and Safety Shot

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

By analyzing existing cross correlation between Stepstone Group and Safety Shot, you can compare the effects of market volatilities on Stepstone and Safety Shot 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 Safety Shot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepstone and Safety Shot.

Diversification Opportunities for Stepstone and Safety Shot

-0.59

Correlation Coefficient

Stepstone  Safety Shot

Excellent diversification

The 3 months correlation between Stepstone and Safety is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Safety Shot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Shot 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 Safety Shot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Shot has no effect on the direction of Stepstone i.e., Stepstone and Safety Shot go up and down completely randomly.

Pair Corralation between Stepstone and Safety Shot

Given the investment horizon of 90 days Stepstone is expected to generate 8.14 times less return on investment than Safety Shot. But when comparing it to its historical volatility, Stepstone Group is 9.9 times less risky than Safety Shot. It trades about 0.1 of its potential returns per unit of risk. Safety Shot is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  39.00  in Safety Shot on September 26, 2024 and sell it today you would lose (22.00) from holding Safety Shot or give up 56.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	63.51%
Values	Daily Returns

Stepstone Group  vs.  Safety Shot

Stepstone Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, Stepstone may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Safety Shot

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Safety Shot are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Safety Shot showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepstone and Safety Shot

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

The idea behind Stepstone Group and Safety Shot 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.