Correlation Between NL Industries and Stepan

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Can any of the company-specific risk be diversified away by investing in both NL Industries 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 NL Industries and Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NL Industries and Stepan Company, you can compare the effects of market volatilities on NL Industries 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 NL Industries with a short position of Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of NL Industries and Stepan.

Diversification Opportunities for NL Industries and Stepan

NL IndustriesStepanDiversified AwayNL IndustriesStepanDiversified Away100%
-0.14
  Correlation Coefficient

Good diversification

The 3 months correlation between NL Industries and Stepan is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and NL Industries 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 NL Industries 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 NL Industries i.e., NL Industries and Stepan go up and down completely randomly.

Pair Corralation between NL Industries and Stepan

Allowing for the 90-day total investment horizon NL Industries is expected to generate 1.74 times more return on investment than Stepan. However, NL Industries is 1.74 times more volatile than Stepan Company. It trades about 0.09 of its potential returns per unit of risk. Stepan Company is currently generating about -0.09 per unit of risk. If you would invest  683.00  in NL Industries on September 22, 2024 and sell it today you would earn a total of  113.00  from holding NL Industries or generate 16.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

NL Industries  vs.  Stepan Company

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec -505101520
JavaScript chart by amCharts 3.21.15NL SCL
       Timeline  
NL Industries 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, NL Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec77.588.599.5
Stepan Company 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec6870727476788082

NL Industries and Stepan Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-9.87-7.4-4.92-2.440.02.495.077.6510.2312.81 0.020.040.060.080.100.12
JavaScript chart by amCharts 3.21.15NL SCL
       Returns  

Pair Trading with NL Industries and Stepan

The main advantage of trading using opposite NL Industries and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NL Industries 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 NL Industries 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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