Correlation Between Stepan and Olympic Steel

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

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

Diversification Opportunities for Stepan and Olympic Steel

0.66

Correlation Coefficient

Stepan  Olympic Steel

Poor diversification

The 3 months correlation between Stepan and Olympic is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel 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 Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of Stepan i.e., Stepan and Olympic Steel go up and down completely randomly.

Pair Corralation between Stepan and Olympic Steel

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Olympic Steel. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.58 times less risky than Olympic Steel. The stock trades about -0.09 of its potential returns per unit of risk. The Olympic Steel is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,774  in Olympic Steel on September 23, 2024 and sell it today you would lose (393.00) from holding Olympic Steel or give up 10.41% 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.  Olympic Steel

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.

Olympic Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Stepan and Olympic Steel

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

The idea behind Stepan Company and Olympic Steel 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.