Correlation Between Stepan and Patterson UTI

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

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

Diversification Opportunities for Stepan and Patterson UTI

0.62

Correlation Coefficient

Stepan  Patterson UTI

Poor diversification

The 3 months correlation between Stepan and Patterson is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Patterson UTI Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patterson UTI Energy 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 Patterson UTI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patterson UTI Energy has no effect on the direction of Stepan i.e., Stepan and Patterson UTI go up and down completely randomly.

Pair Corralation between Stepan and Patterson UTI

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Patterson UTI. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.87 times less risky than Patterson UTI. The stock trades about -0.48 of its potential returns per unit of risk. The Patterson UTI Energy is currently generating about -0.18 of returns per unit of risk over similar time horizon. If you would invest  854.00  in Patterson UTI Energy on September 24, 2024 and sell it today you would lose (86.00) from holding Patterson UTI Energy or give up 10.07% 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.  Patterson UTI Energy

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.

Patterson UTI Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Patterson UTI Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Patterson UTI is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Stepan and Patterson UTI

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

The idea behind Stepan Company and Patterson UTI Energy 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.