Correlation Between Stepan and Yuexiu Transport

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

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

Diversification Opportunities for Stepan and Yuexiu Transport

0.4

Correlation Coefficient

Stepan  Yuexiu Transport

Very weak diversification

The 3 months correlation between Stepan and Yuexiu is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Yuexiu Transport Infrastructur in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuexiu Transport Inf 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 Yuexiu Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yuexiu Transport Inf has no effect on the direction of Stepan i.e., Stepan and Yuexiu Transport go up and down completely randomly.

Pair Corralation between Stepan and Yuexiu Transport

Considering the 90-day investment horizon Stepan is expected to generate 5.32 times less return on investment than Yuexiu Transport. But when comparing it to its historical volatility, Stepan Company is 1.89 times less risky than Yuexiu Transport. It trades about 0.05 of its potential returns per unit of risk. Yuexiu Transport Infrastructure is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  45.00  in Yuexiu Transport Infrastructure on September 12, 2024 and sell it today you would earn a total of  13.00  from holding Yuexiu Transport Infrastructure or generate 28.89% return on investment over 90 days.

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

Stepan Company  vs.  Yuexiu Transport Infrastructur

Stepan Company

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 3 (%) 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.

Yuexiu Transport Inf

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yuexiu Transport Infrastructure are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Yuexiu Transport reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Yuexiu Transport

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

The idea behind Stepan Company and Yuexiu Transport Infrastructure 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.