Correlation Between Stepan and Arq
Can any of the company-specific risk be diversified away by investing in both Stepan and Arq 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 Arq into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepan Company and Arq Inc, you can compare the effects of market volatilities on Stepan and Arq 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 Arq. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and Arq.
Diversification Opportunities for Stepan and Arq
Very poor diversification
The 3 months correlation between Stepan and Arq is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Arq Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arq Inc 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 Arq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arq Inc has no effect on the direction of Stepan i.e., Stepan and Arq go up and down completely randomly.
Pair Corralation between Stepan and Arq
Considering the 90-day investment horizon Stepan is expected to generate 3.0 times less return on investment than Arq. But when comparing it to its historical volatility, Stepan Company is 1.35 times less risky than Arq. It trades about 0.15 of its potential returns per unit of risk. Arq Inc is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 498.00 in Arq Inc on April 19, 2025 and sell it today you would earn a total of 91.00 from holding Arq Inc or generate 18.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepan Company vs. Arq Inc
Performance |
| Timeline |
| Stepan Company |
| Arq Inc |
Stepan and Arq Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepan and Arq
The main advantage of trading using opposite Stepan and Arq positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepan position performs unexpectedly, Arq 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 Arq will offset losses from the drop in Arq's long position.The idea behind Stepan Company and Arq Inc 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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