Correlation Between JD Sports and Stepan

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

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

Diversification Opportunities for JD Sports and Stepan

0.73

Correlation Coefficient

JD Sports  Stepan

Poor diversification

The 3 months correlation between JDDSF and Stepan is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding JD Sports Fashion and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company and JD Sports 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 JD Sports Fashion 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 JD Sports i.e., JD Sports and Stepan go up and down completely randomly.

Pair Corralation between JD Sports and Stepan

Assuming the 90 days horizon JD Sports Fashion is expected to generate 1.58 times more return on investment than Stepan. However, JD Sports is 1.58 times more volatile than Stepan Company. It trades about 0.1 of its potential returns per unit of risk. Stepan Company is currently generating about -0.05 per unit of risk. If you would invest  101.00  in JD Sports Fashion on May 2, 2025 and sell it today you would earn a total of  19.00  from holding JD Sports Fashion or generate 18.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

JD Sports Fashion  vs.  Stepan Company

JD Sports Fashion

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in JD Sports Fashion are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, JD Sports reported solid returns over the last few months and may actually be approaching a breakup point.

Stepan Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with JD Sports and Stepan

The main advantage of trading using opposite JD Sports and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JD Sports 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 JD Sports Fashion 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.