Correlation Between Stepan and ZKH Group

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

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

Diversification Opportunities for Stepan and ZKH Group

0.07

Correlation Coefficient

Stepan  ZKH Group

Significant diversification

The 3 months correlation between Stepan and ZKH is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and ZKH Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZKH Group Limited 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 ZKH Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZKH Group Limited has no effect on the direction of Stepan i.e., Stepan and ZKH Group go up and down completely randomly.

Pair Corralation between Stepan and ZKH Group

Considering the 90-day investment horizon Stepan Company is expected to generate 0.59 times more return on investment than ZKH Group. However, Stepan Company is 1.71 times less risky than ZKH Group. It trades about -0.06 of its potential returns per unit of risk. ZKH Group Limited is currently generating about -0.19 per unit of risk. If you would invest  7,668  in Stepan Company on September 13, 2024 and sell it today you would lose (118.00) from holding Stepan Company or give up 1.54% of portfolio value over 90 days.

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

Stepan Company  vs.  ZKH Group Limited

Stepan Company

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

ZKH Group Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ZKH Group Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting forward-looking signals, ZKH Group demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and ZKH Group

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

The idea behind Stepan Company and ZKH Group Limited 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.