Correlation Between Stepan and Avient Corp

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

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

Diversification Opportunities for Stepan and Avient Corp

0.71

Correlation Coefficient

Stepan  Avient Corp

Poor diversification

The 3 months correlation between Stepan and Avient is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Avient Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avient Corp 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 Avient Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avient Corp has no effect on the direction of Stepan i.e., Stepan and Avient Corp go up and down completely randomly.

Pair Corralation between Stepan and Avient Corp

Considering the 90-day investment horizon Stepan is expected to generate 4.57 times less return on investment than Avient Corp. In addition to that, Stepan is 1.03 times more volatile than Avient Corp. It trades about 0.02 of its total potential returns per unit of risk. Avient Corp is currently generating about 0.09 per unit of volatility. If you would invest  4,705  in Avient Corp on August 31, 2024 and sell it today you would earn a total of  420.00  from holding Avient Corp or generate 8.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Stepan Company  vs.  Avient Corp

Stepan Company

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 1 (%) 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.

Avient Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avient Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Avient Corp may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Stepan and Avient Corp

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

The idea behind Stepan Company and Avient Corp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.