Correlation Between Stepan and Hooker Furniture

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

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

Diversification Opportunities for Stepan and Hooker Furniture

0.77

Correlation Coefficient

Stepan  Hooker Furniture

Poor diversification

The 3 months correlation between Stepan and Hooker is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Hooker Furniture in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hooker Furniture 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 Hooker Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hooker Furniture has no effect on the direction of Stepan i.e., Stepan and Hooker Furniture go up and down completely randomly.

Pair Corralation between Stepan and Hooker Furniture

Considering the 90-day investment horizon Stepan is expected to generate 6.2 times less return on investment than Hooker Furniture. But when comparing it to its historical volatility, Stepan Company is 1.77 times less risky than Hooker Furniture. It trades about 0.02 of its potential returns per unit of risk. Hooker Furniture is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,632  in Hooker Furniture on September 13, 2024 and sell it today you would earn a total of  140.00  from holding Hooker Furniture or generate 8.58% return on investment over 90 days.

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

Stepan Company  vs.  Hooker Furniture

Stepan Company

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 1 (%) 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 current stock price mess, may contribute to short-term losses for the institutional investors.

Hooker Furniture

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hooker Furniture are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Hooker Furniture may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Stepan and Hooker Furniture

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

The idea behind Stepan Company and Hooker Furniture 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.