Correlation Between Valhi and Stepan

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

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

Diversification Opportunities for Valhi and Stepan

0.46

Correlation Coefficient

Valhi  Stepan

Very weak diversification

The 3 months correlation between Valhi and Stepan is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Valhi 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 Valhi Inc 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 Valhi i.e., Valhi and Stepan go up and down completely randomly.

Pair Corralation between Valhi and Stepan

Considering the 90-day investment horizon Valhi Inc is expected to generate 2.74 times more return on investment than Stepan. However, Valhi is 2.74 times more volatile than Stepan Company. It trades about -0.03 of its potential returns per unit of risk. Stepan Company is currently generating about -0.09 per unit of risk. 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 Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Valhi Inc  vs.  Stepan Company

Valhi Inc

Risk-Adjusted Performance

0 of 100

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 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 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.

Pair Trading with Valhi and Stepan

The main advantage of trading using opposite Valhi and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valhi 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 Valhi Inc 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.

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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.