Correlation Between Quaker Chemical and Stepan

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

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

Diversification Opportunities for Quaker Chemical and Stepan

0.49

Correlation Coefficient

Quaker Chemical  Stepan

Very weak diversification

The 3 months correlation between Quaker and Stepan is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Quaker Chemical and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and Quaker Chemical 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 Quaker Chemical are associated (or correlated) with Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Quaker Chemical i.e., Quaker Chemical and Stepan go up and down completely randomly.

Pair Corralation between Quaker Chemical and Stepan

Considering the 90-day investment horizon Quaker Chemical is expected to under-perform the Stepan. But the stock apears to be less risky and, when comparing its historical volatility, Quaker Chemical is 1.07 times less risky than Stepan. The stock trades about -0.11 of its potential returns per unit of risk. The Stepan Company is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  8,752  in Stepan Company on March 7, 2024 and sell it today you would lose (218.00) from holding Stepan Company or give up 2.49% of portfolio value over 90 days.

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

Quaker Chemical  vs.  Stepan Company

Quaker Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quaker Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

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 quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Quaker Chemical and Stepan

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

The idea behind Quaker Chemical and Stepan Company 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.