Correlation Between Westlake Chemical and Stepan

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

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

Diversification Opportunities for Westlake Chemical and Stepan

0.73

Correlation Coefficient

Westlake Chemical  Stepan

Poor diversification

The 3 months correlation between Westlake and Stepan is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Westlake Chemical 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 Westlake Chemical 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 Westlake Chemical i.e., Westlake Chemical and Stepan go up and down completely randomly.

Pair Corralation between Westlake Chemical and Stepan

Considering the 90-day investment horizon Westlake Chemical is expected to generate 0.88 times more return on investment than Stepan. However, Westlake Chemical is 1.14 times less risky than Stepan. It trades about -0.1 of its potential returns per unit of risk. Stepan Company is currently generating about -0.1 per unit of risk. If you would invest  11,290  in Westlake Chemical on December 28, 2024 and sell it today you would lose (1,131) from holding Westlake Chemical or give up 10.02% of portfolio value over 90 days.

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

Westlake Chemical  vs.  Stepan Company

Westlake Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westlake Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Stepan Company

Risk-Adjusted Performance

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 weak 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 Westlake Chemical and Stepan

The main advantage of trading using opposite Westlake Chemical and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Westlake Chemical 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 Westlake Chemical 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.