Correlation Between Stepan and Element Solutions

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

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

Diversification Opportunities for Stepan and Element Solutions

0.9

Correlation Coefficient

Stepan  Element Solutions

Almost no diversification

The 3 months correlation between Stepan and Element is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions 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 Element Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Solutions has no effect on the direction of Stepan i.e., Stepan and Element Solutions go up and down completely randomly.

Pair Corralation between Stepan and Element Solutions

Considering the 90-day investment horizon Stepan is expected to generate 1.69 times less return on investment than Element Solutions. In addition to that, Stepan is 1.03 times more volatile than Element Solutions. It trades about 0.15 of its total potential returns per unit of risk. Element Solutions is currently generating about 0.26 per unit of volatility. If you would invest  1,793  in Element Solutions on April 20, 2025 and sell it today you would earn a total of  676.00  from holding Element Solutions or generate 37.7% return on investment over 90 days.

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

Stepan Company  vs.  Element Solutions

Stepan Company

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stepan Company are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental indicators, Stepan disclosed solid returns over the last few months and may actually be approaching a breakup point.

Element Solutions

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Element Solutions are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Element Solutions demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and Element Solutions

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

The idea behind Stepan Company and Element Solutions 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.