Correlation Between Park Ohio and Stepan

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

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

Diversification Opportunities for Park Ohio and Stepan

0.76

Correlation Coefficient

Park Ohio  Stepan

Poor diversification

The 3 months correlation between Park and Stepan is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Park Ohio Holdings and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Park Ohio 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 Park Ohio Holdings 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 Park Ohio i.e., Park Ohio and Stepan go up and down completely randomly.

Pair Corralation between Park Ohio and Stepan

Given the investment horizon of 90 days Park Ohio Holdings is expected to generate 1.45 times more return on investment than Stepan. However, Park Ohio is 1.45 times more volatile than Stepan Company. It trades about -0.05 of its potential returns per unit of risk. Stepan Company is currently generating about -0.09 per unit of risk. If you would invest  2,902  in Park Ohio Holdings on September 25, 2024 and sell it today you would lose (282.50) from holding Park Ohio Holdings or give up 9.73% of portfolio value over 90 days.

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

Park Ohio Holdings  vs.  Stepan Company

Park Ohio Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Park Ohio Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

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 Park Ohio and Stepan

The main advantage of trading using opposite Park Ohio and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Park Ohio 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 Park Ohio Holdings 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 CEOs Directory module to screen CEOs from public companies around the world.