Correlation Between Freeport and Stepan

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

By analyzing existing cross correlation between Freeport McMoRan 54 percent and Stepan Company, you can compare the effects of market volatilities on Freeport and Stepan 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 Freeport with a short position of Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport and Stepan.

Diversification Opportunities for Freeport and Stepan

0.5

Correlation Coefficient

Freeport  Stepan

Very weak diversification

The 3 months correlation between Freeport and Stepan is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoRan 54 percent and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Freeport 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 Freeport McMoRan 54 percent are associated (or correlated) with Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Freeport i.e., Freeport and Stepan go up and down completely randomly.

Pair Corralation between Freeport and Stepan

Assuming the 90 days trading horizon Freeport McMoRan 54 percent is expected to generate 0.3 times more return on investment than Stepan. However, Freeport McMoRan 54 percent is 3.34 times less risky than Stepan. It trades about -0.01 of its potential returns per unit of risk. Stepan Company is currently generating about -0.07 per unit of risk. If you would invest  9,896  in Freeport McMoRan 54 percent on September 25, 2024 and sell it today you would lose (83.00) from holding Freeport McMoRan 54 percent or give up 0.84% of portfolio value over 90 days.

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

Freeport McMoRan 54 percent  vs.  Stepan Company

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan 54 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Freeport is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 latest unsteady performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Freeport and Stepan

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

The idea behind Freeport McMoRan 54 percent and Stepan Company 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.