Correlation Between Stepan and Alto Ingredients

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

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

Diversification Opportunities for Stepan and Alto Ingredients

0.73

Correlation Coefficient

Stepan  Alto Ingredients

Poor diversification

The 3 months correlation between Stepan and Alto is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Alto Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alto Ingredients 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 Alto Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alto Ingredients has no effect on the direction of Stepan i.e., Stepan and Alto Ingredients go up and down completely randomly.

Pair Corralation between Stepan and Alto Ingredients

Considering the 90-day investment horizon Stepan is expected to generate 2.45 times less return on investment than Alto Ingredients. But when comparing it to its historical volatility, Stepan Company is 2.07 times less risky than Alto Ingredients. It trades about 0.1 of its potential returns per unit of risk. Alto Ingredients is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  90.00  in Alto Ingredients on April 30, 2025 and sell it today you would earn a total of  26.00  from holding Alto Ingredients or generate 28.89% return on investment over 90 days.

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

Stepan Company  vs.  Alto Ingredients

Stepan Company

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental indicators, Stepan disclosed solid returns over the last few months and may actually be approaching a breakup point.

Alto Ingredients

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alto Ingredients are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Alto Ingredients displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Alto Ingredients

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

The idea behind Stepan Company and Alto Ingredients 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.