Correlation Between Topbuild Corp and Stepan

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

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

Diversification Opportunities for Topbuild Corp and Stepan

0.59

Correlation Coefficient

Topbuild Corp  Stepan

Very weak diversification

The 3 months correlation between Topbuild and Stepan is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Topbuild Corp and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Topbuild Corp 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 Topbuild Corp 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 Topbuild Corp i.e., Topbuild Corp and Stepan go up and down completely randomly.

Pair Corralation between Topbuild Corp and Stepan

Considering the 90-day investment horizon Topbuild Corp is expected to under-perform the Stepan. In addition to that, Topbuild Corp is 1.43 times more volatile than Stepan Company. It trades about -0.61 of its total potential returns per unit of risk. Stepan Company is currently generating about -0.46 per unit of volatility. If you would invest  7,741  in Stepan Company on September 25, 2024 and sell it today you would lose (999.00) from holding Stepan Company or give up 12.91% of portfolio value over 90 days.

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

Topbuild Corp  vs.  Stepan Company

Topbuild Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Topbuild Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's essential indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 Topbuild Corp and Stepan

The main advantage of trading using opposite Topbuild Corp and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Topbuild Corp 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 Topbuild Corp 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.