Correlation Between Stepan and Minerals Technologies

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

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

Diversification Opportunities for Stepan and Minerals Technologies

0.42

Correlation Coefficient

Stepan  Minerals Technologies

Very weak diversification

The 3 months correlation between Stepan and Minerals is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Minerals Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Minerals Technologies 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 Minerals Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Minerals Technologies has no effect on the direction of Stepan i.e., Stepan and Minerals Technologies go up and down completely randomly.

Pair Corralation between Stepan and Minerals Technologies

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Minerals Technologies. In addition to that, Stepan is 1.02 times more volatile than Minerals Technologies. It trades about -0.42 of its total potential returns per unit of risk. Minerals Technologies is currently generating about -0.32 per unit of volatility. If you would invest  8,339  in Minerals Technologies on September 23, 2024 and sell it today you would lose (777.00) from holding Minerals Technologies or give up 9.32% of portfolio value over 90 days.

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

Stepan Company  vs.  Minerals Technologies

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 latest weak performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Minerals Technologies

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Minerals Technologies are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Minerals Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stepan and Minerals Technologies

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

The idea behind Stepan Company and Minerals Technologies 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.