Correlation Between Western Acquisition and Stepstone

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

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

Diversification Opportunities for Western Acquisition and Stepstone

0.59

Correlation Coefficient

Western Acquisition  Stepstone

Very weak diversification

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

Pair Corralation between Western Acquisition and Stepstone

Given the investment horizon of 90 days Western Acquisition is expected to generate 3.46 times less return on investment than Stepstone. But when comparing it to its historical volatility, Western Acquisition Ventures is 1.1 times less risky than Stepstone. It trades about 0.05 of its potential returns per unit of risk. Stepstone Group is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  5,379  in Stepstone Group on September 2, 2024 and sell it today you would earn a total of  1,210  from holding Stepstone Group or generate 22.49% return on investment over 90 days.

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

Western Acquisition Ventures  vs.  Stepstone Group

Western Acquisition

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Acquisition Ventures are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Western Acquisition is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Stepstone Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile technical and fundamental indicators, Stepstone reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Acquisition and Stepstone

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

The idea behind Western Acquisition Ventures and Stepstone Group 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.