Correlation Between Stepan and Consol Energy

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

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

Diversification Opportunities for Stepan and Consol Energy

0.43

Correlation Coefficient

Stepan  Consol Energy

Very weak diversification

The 3 months correlation between Stepan and Consol is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Consol Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consol Energy 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 Consol Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consol Energy has no effect on the direction of Stepan i.e., Stepan and Consol Energy go up and down completely randomly.

Pair Corralation between Stepan and Consol Energy

Considering the 90-day investment horizon Stepan is expected to generate 9.13 times less return on investment than Consol Energy. But when comparing it to its historical volatility, Stepan Company is 1.32 times less risky than Consol Energy. It trades about 0.03 of its potential returns per unit of risk. Consol Energy is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  9,552  in Consol Energy on September 2, 2024 and sell it today you would earn a total of  3,518  from holding Consol Energy or generate 36.83% return on investment over 90 days.

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

Stepan Company  vs.  Consol Energy

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Consol Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Consol Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Consol Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Consol Energy

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

The idea behind Stepan Company and Consol Energy 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..