Correlation Between Stepan and Park Ohio

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

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

Diversification Opportunities for Stepan and Park Ohio

0.76

Correlation Coefficient

Stepan  Park Ohio

Poor diversification

The 3 months correlation between Stepan and Park is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Park Ohio Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Ohio Holdings 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 Park Ohio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Ohio Holdings has no effect on the direction of Stepan i.e., Stepan and Park Ohio go up and down completely randomly.

Pair Corralation between Stepan and Park Ohio

Considering the 90-day investment horizon Stepan Company is expected to generate 0.77 times more return on investment than Park Ohio. However, Stepan Company is 1.3 times less risky than Park Ohio. It trades about -0.46 of its potential returns per unit of risk. Park Ohio Holdings is currently generating about -0.59 per unit of risk. If you would invest  7,741  in Stepan Company on September 25, 2024 and sell it today you would lose (999.00) from holding Stepan Company or give up 12.91% of portfolio value over 90 days.

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

Stepan Company  vs.  Park Ohio Holdings

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 unsteady 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.

Park Ohio Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Park Ohio Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Stepan and Park Ohio

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

The idea behind Stepan Company and Park Ohio Holdings 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.