Correlation Between Stepan and CERo Therapeutics

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

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

Diversification Opportunities for Stepan and CERo Therapeutics

0.2

Correlation Coefficient

Stepan  CERo Therapeutics

Modest diversification

The 3 months correlation between Stepan and CERo is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and CERo Therapeutics Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CERo Therapeutics 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 CERo Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CERo Therapeutics has no effect on the direction of Stepan i.e., Stepan and CERo Therapeutics go up and down completely randomly.

Pair Corralation between Stepan and CERo Therapeutics

Considering the 90-day investment horizon Stepan Company is expected to generate 0.05 times more return on investment than CERo Therapeutics. However, Stepan Company is 19.21 times less risky than CERo Therapeutics. It trades about -0.5 of its potential returns per unit of risk. CERo Therapeutics Holdings is currently generating about -0.03 per unit of risk. If you would invest  7,741  in Stepan Company on September 26, 2024 and sell it today you would lose (1,059) from holding Stepan Company or give up 13.68% 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.  CERo Therapeutics Holdings

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 unsteady performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

CERo Therapeutics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CERo Therapeutics Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, CERo Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and CERo Therapeutics

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

The idea behind Stepan Company and CERo Therapeutics Holdings 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.