Correlation Between Stepan and Addus HomeCare

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

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

Diversification Opportunities for Stepan and Addus HomeCare

0.03

Correlation Coefficient

Stepan  Addus HomeCare

Significant diversification

The 3 months correlation between Stepan and Addus is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Addus HomeCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addus HomeCare and Stepan 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 Stepan Company are associated (or correlated) with Addus HomeCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addus HomeCare has no effect on the direction of Stepan i.e., Stepan and Addus HomeCare go up and down completely randomly.

Pair Corralation between Stepan and Addus HomeCare

Considering the 90-day investment horizon Stepan Company is expected to generate 1.21 times more return on investment than Addus HomeCare. However, Stepan is 1.21 times more volatile than Addus HomeCare. It trades about 0.09 of its potential returns per unit of risk. Addus HomeCare is currently generating about -0.09 per unit of risk. 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

Stepan Company  vs.  Addus HomeCare

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.

Addus HomeCare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Addus HomeCare has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Addus HomeCare is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Stepan and Addus HomeCare

The main advantage of trading using opposite Stepan and Addus HomeCare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Addus HomeCare 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 Addus HomeCare will offset losses from the drop in Addus HomeCare's long position.

The idea behind Stepan Company and Addus HomeCare 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.