Correlation Between Stepan and Biocardia

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

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

Diversification Opportunities for Stepan and Biocardia

0.36

Correlation Coefficient

Stepan  Biocardia

Weak diversification

The 3 months correlation between Stepan and Biocardia is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Biocardia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Biocardia 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 Biocardia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Biocardia has no effect on the direction of Stepan i.e., Stepan and Biocardia go up and down completely randomly.

Pair Corralation between Stepan and Biocardia

Considering the 90-day investment horizon Stepan Company is expected to generate 0.34 times more return on investment than Biocardia. However, Stepan Company is 2.92 times less risky than Biocardia. It trades about -0.5 of its potential returns per unit of risk. Biocardia is currently generating about -0.2 per unit of risk. If you would invest  7,741  in Stepan Company on September 24, 2024 and sell it today you would lose (1,029) from holding Stepan Company or give up 13.29% of portfolio value over 90 days.

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

Stepan Company  vs.  Biocardia

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 weak 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.

Biocardia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Biocardia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Stepan and Biocardia

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

The idea behind Stepan Company and Biocardia 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.