Correlation Between Stepan and ProAssurance

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

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

Diversification Opportunities for Stepan and ProAssurance

0.44

Correlation Coefficient

Stepan  ProAssurance

Very weak diversification

The 3 months correlation between Stepan and ProAssurance is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and ProAssurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ProAssurance 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 ProAssurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ProAssurance has no effect on the direction of Stepan i.e., Stepan and ProAssurance go up and down completely randomly.

Pair Corralation between Stepan and ProAssurance

Considering the 90-day investment horizon Stepan Company is expected to generate 4.73 times more return on investment than ProAssurance. However, Stepan is 4.73 times more volatile than ProAssurance. It trades about 0.15 of its potential returns per unit of risk. ProAssurance is currently generating about 0.11 per unit of risk. If you would invest  4,827  in Stepan Company on April 24, 2025 and sell it today you would earn a total of  955.00  from holding Stepan Company or generate 19.78% return on investment over 90 days.

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

Stepan Company  vs.  ProAssurance

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 weak fundamental indicators, Stepan disclosed solid returns over the last few months and may actually be approaching a breakup point.

ProAssurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ProAssurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ProAssurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stepan and ProAssurance

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

The idea behind Stepan Company and ProAssurance 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 Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.