Correlation Between Stepan and Global Ship

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

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

Diversification Opportunities for Stepan and Global Ship

-0.01

Correlation Coefficient

Stepan  Global Ship

Good diversification

The 3 months correlation between Stepan and Global is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Global Ship Lease in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Ship Lease 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 Global Ship. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Ship Lease has no effect on the direction of Stepan i.e., Stepan and Global Ship go up and down completely randomly.

Pair Corralation between Stepan and Global Ship

Considering the 90-day investment horizon Stepan Company is expected to under-perform the Global Ship. In addition to that, Stepan is 1.26 times more volatile than Global Ship Lease. It trades about -0.02 of its total potential returns per unit of risk. Global Ship Lease is currently generating about 0.06 per unit of volatility. If you would invest  2,568  in Global Ship Lease on February 20, 2024 and sell it today you would earn a total of  101.00  from holding Global Ship Lease or generate 3.93% return on investment over 90 days.

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

Stepan Company  vs.  Global Ship Lease

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.

Global Ship Lease

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Global Ship Lease are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Global Ship is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stepan and Global Ship

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

The idea behind Stepan Company and Global Ship Lease 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.