Correlation Between Stepan and Titan Machinery

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

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

Diversification Opportunities for Stepan and Titan Machinery

0.43

Correlation Coefficient

Stepan  Titan Machinery

Very weak diversification

The 3 months correlation between Stepan and Titan is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery 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 Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of Stepan i.e., Stepan and Titan Machinery go up and down completely randomly.

Pair Corralation between Stepan and Titan Machinery

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Titan Machinery. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.6 times less risky than Titan Machinery. The stock trades about -0.09 of its potential returns per unit of risk. The Titan Machinery is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,352  in Titan Machinery on September 23, 2024 and sell it today you would lose (33.00) from holding Titan Machinery or give up 2.44% 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.  Titan Machinery

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.

Titan Machinery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Titan Machinery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Titan Machinery 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 Titan Machinery

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

The idea behind Stepan Company and Titan Machinery 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.