Correlation Between Stepan and CECO Environmental

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

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

Diversification Opportunities for Stepan and CECO Environmental

-0.72

Correlation Coefficient

Stepan  CECO Environmental

Pay attention - limited upside

The 3 months correlation between Stepan and CECO is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and CECO Environmental Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CECO Environmental Corp 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 CECO Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CECO Environmental Corp has no effect on the direction of Stepan i.e., Stepan and CECO Environmental go up and down completely randomly.

Pair Corralation between Stepan and CECO Environmental

Considering the 90-day investment horizon Stepan Company is expected to under-perform the CECO Environmental. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.5 times less risky than CECO Environmental. The stock trades about -0.06 of its potential returns per unit of risk. The CECO Environmental Corp is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,725  in CECO Environmental Corp on May 21, 2025 and sell it today you would earn a total of  1,933  from holding CECO Environmental Corp or generate 70.94% return on investment over 90 days.

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

Stepan Company  vs.  CECO Environmental Corp

Stepan Company

Risk-Adjusted Performance

Weakest

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.

CECO Environmental Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, CECO Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and CECO Environmental

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

The idea behind Stepan Company and CECO Environmental Corp 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.