Correlation Between Stepan and JD Sports

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

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

Diversification Opportunities for Stepan and JD Sports

-0.36

Correlation Coefficient

Stepan  JD Sports

Very good diversification

The 3 months correlation between Stepan and JDDSF is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion 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 JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Stepan i.e., Stepan and JD Sports go up and down completely randomly.

Pair Corralation between Stepan and JD Sports

Considering the 90-day investment horizon Stepan Company is expected to under-perform the JD Sports. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 2.65 times less risky than JD Sports. The stock trades about 0.0 of its potential returns per unit of risk. The JD Sports Fashion is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  128.00  in JD Sports Fashion on March 13, 2024 and sell it today you would earn a total of  36.50  from holding JD Sports Fashion or generate 28.52% 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.  JD Sports Fashion

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.

JD Sports Fashion

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JD Sports Fashion are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, JD Sports reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and JD Sports

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

The idea behind Stepan Company and JD Sports Fashion 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.