Correlation Between Old Dominion and Stepan

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

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

Diversification Opportunities for Old Dominion and Stepan

0.56

Correlation Coefficient

Old Dominion  Stepan

Very weak diversification

The 3 months correlation between Old and Stepan is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Old Dominion Freight and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Old Dominion 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 Old Dominion Freight 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 Old Dominion i.e., Old Dominion and Stepan go up and down completely randomly.

Pair Corralation between Old Dominion and Stepan

Given the investment horizon of 90 days Old Dominion is expected to generate 1.09 times less return on investment than Stepan. In addition to that, Old Dominion is 1.27 times more volatile than Stepan Company. It trades about 0.07 of its total potential returns per unit of risk. Stepan Company is currently generating about 0.09 per unit of volatility. If you would invest  7,246  in Stepan Company on September 5, 2024 and sell it today you would earn a total of  315.00  from holding Stepan Company or generate 4.35% return on investment over 90 days.

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

Old Dominion Freight  vs.  Stepan Company

Old Dominion Freight

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Old Dominion Freight are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Old Dominion disclosed solid returns over the last few months and may actually be approaching a breakup point.

Stepan Company

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Old Dominion and Stepan

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