Correlation Between Patterson UTI and Stepan

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

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

Diversification Opportunities for Patterson UTI and Stepan

0.62

Correlation Coefficient

Patterson UTI  Stepan

Poor diversification

The 3 months correlation between Patterson and Stepan is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Patterson UTI Energy and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Patterson UTI 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 Patterson UTI Energy 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 Patterson UTI i.e., Patterson UTI and Stepan go up and down completely randomly.

Pair Corralation between Patterson UTI and Stepan

Given the investment horizon of 90 days Patterson UTI Energy is expected to generate 1.57 times more return on investment than Stepan. However, Patterson UTI is 1.57 times more volatile than Stepan Company. It trades about -0.02 of its potential returns per unit of risk. Stepan Company is currently generating about -0.1 per unit of risk. If you would invest  819.00  in Patterson UTI Energy on September 24, 2024 and sell it today you would lose (51.00) from holding Patterson UTI Energy or give up 6.23% of portfolio value over 90 days.

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

Patterson UTI Energy  vs.  Stepan Company

Patterson UTI Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Patterson UTI Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Patterson UTI is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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 Patterson UTI and Stepan

The main advantage of trading using opposite Patterson UTI and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Patterson UTI 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 Patterson UTI Energy 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.