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

0.7

Correlation Coefficient

Stepan  Arq

Poor diversification

The 3 months correlation between Stepan and Arq is 0.7. 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 Company is expected to under-perform the Arq. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.93 times less risky than Arq. The stock trades about -0.04 of its potential returns per unit of risk. The Arq Inc is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  412.00  in Arq Inc on May 3, 2025 and sell it today you would earn a total of  104.00  from holding Arq Inc or generate 25.24% 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.  Arq Inc

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 quite persistent fundamental indicators, Stepan is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Arq Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arq Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Arq reported solid returns over the last few months and may actually be approaching a breakup point.

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.

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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.