Correlation Between Dominos Pizza and Stepan

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

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

Diversification Opportunities for Dominos Pizza and Stepan

0.3

Correlation Coefficient

Dominos Pizza  Stepan

Weak diversification

The 3 months correlation between Dominos and Stepan is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Dominos Pizza and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Dominos Pizza 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 Dominos Pizza 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 Dominos Pizza i.e., Dominos Pizza and Stepan go up and down completely randomly.

Pair Corralation between Dominos Pizza and Stepan

Considering the 90-day investment horizon Dominos Pizza is expected to generate 0.87 times more return on investment than Stepan. However, Dominos Pizza is 1.14 times less risky than Stepan. It trades about 0.09 of its potential returns per unit of risk. Stepan Company is currently generating about -0.06 per unit of risk. If you would invest  41,037  in Dominos Pizza on September 19, 2024 and sell it today you would earn a total of  3,637  from holding Dominos Pizza or generate 8.86% return on investment over 90 days.

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

Dominos Pizza  vs.  Stepan Company

Dominos Pizza

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dominos Pizza are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Dominos Pizza may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 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 Dominos Pizza and Stepan

The main advantage of trading using opposite Dominos Pizza and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dominos Pizza 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 Dominos Pizza 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.