Correlation Between Stepan and Inflection Point

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

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

Diversification Opportunities for Stepan and Inflection Point

-0.56

Correlation Coefficient

Stepan  Inflection Point

Excellent diversification

The 3 months correlation between Stepan and Inflection is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Inflection Point Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Inflection Point Acq 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 Inflection Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Inflection Point Acq has no effect on the direction of Stepan i.e., Stepan and Inflection Point go up and down completely randomly.

Pair Corralation between Stepan and Inflection Point

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Inflection Point. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 4.51 times less risky than Inflection Point. The stock trades about -0.59 of its potential returns per unit of risk. The Inflection Point Acquisition is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,100  in Inflection Point Acquisition on September 29, 2024 and sell it today you would earn a total of  155.00  from holding Inflection Point Acquisition or generate 14.09% return on investment over 90 days.

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

Stepan Company  vs.  Inflection Point Acquisition

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.

Inflection Point Acq

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Inflection Point Acquisition are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Inflection Point unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Inflection Point

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

The idea behind Stepan Company and Inflection Point Acquisition 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.