Correlation Between Stepan and AMCON Distributing

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

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

Diversification Opportunities for Stepan and AMCON Distributing

0.04

Correlation Coefficient

Stepan  AMCON Distributing

Significant diversification

The 3 months correlation between Stepan and AMCON is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and AMCON Distributing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AMCON Distributing 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 AMCON Distributing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AMCON Distributing has no effect on the direction of Stepan i.e., Stepan and AMCON Distributing go up and down completely randomly.

Pair Corralation between Stepan and AMCON Distributing

Considering the 90-day investment horizon Stepan Company is expected to under-perform the AMCON Distributing. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.77 times less risky than AMCON Distributing. The stock trades about -0.03 of its potential returns per unit of risk. The AMCON Distributing is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  18,124  in AMCON Distributing on September 14, 2024 and sell it today you would lose (4,524) from holding AMCON Distributing or give up 24.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.99%
Values	Daily Returns

Stepan Company  vs.  AMCON Distributing

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 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.

AMCON Distributing

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in AMCON Distributing are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward indicators, AMCON Distributing is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Stepan and AMCON Distributing

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

The idea behind Stepan Company and AMCON Distributing 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.