Correlation Between SP High and Stepstone

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

By analyzing existing cross correlation between SP High Yield and Stepstone Group, you can compare the effects of market volatilities on SP High and Stepstone 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 SP High with a short position of Stepstone. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP High and Stepstone.

Diversification Opportunities for SP High and Stepstone

0.23

Correlation Coefficient

SP High  Stepstone

Modest diversification

The 3 months correlation between SPHYDA and Stepstone is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding SP High Yield and Stepstone Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepstone Group and SP High 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 SP High Yield are associated (or correlated) with Stepstone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepstone Group has no effect on the direction of SP High i.e., SP High and Stepstone go up and down completely randomly.

Pair Corralation between SP High and Stepstone

Assuming the 90 days trading horizon SP High is expected to generate 14.85 times less return on investment than Stepstone. But when comparing it to its historical volatility, SP High Yield is 2.88 times less risky than Stepstone. It trades about 0.02 of its potential returns per unit of risk. Stepstone Group is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,339  in Stepstone Group on September 24, 2024 and sell it today you would earn a total of  3,594  from holding Stepstone Group or generate 153.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

SP High Yield  vs.  Stepstone Group

Pair Trading with SP High and Stepstone

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

The idea behind SP High Yield and Stepstone Group 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.