Correlation Between Stepan and First Financial

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

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

Diversification Opportunities for Stepan and First Financial

0.61

Correlation Coefficient

Stepan  First Financial

Poor diversification

The 3 months correlation between Stepan and First is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and First Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial 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 First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial has no effect on the direction of Stepan i.e., Stepan and First Financial go up and down completely randomly.

Pair Corralation between Stepan and First Financial

Considering the 90-day investment horizon Stepan Company is expected to under-perform the First Financial. In addition to that, Stepan is 1.36 times more volatile than First Financial. It trades about -0.02 of its total potential returns per unit of risk. First Financial is currently generating about 0.08 per unit of volatility. If you would invest  4,958  in First Financial on May 7, 2025 and sell it today you would earn a total of  374.00  from holding First Financial or generate 7.54% 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.  First Financial

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 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.

First Financial

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, First Financial may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Stepan and First Financial

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

The idea behind Stepan Company and First Financial 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.