Correlation Between Stepan and TIM Participacoes

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

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

Diversification Opportunities for Stepan and TIM Participacoes

0.82

Correlation Coefficient

Stepan  TIM Participacoes

Very poor diversification

The 3 months correlation between Stepan and TIM is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and TIM Participacoes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TIM Participacoes 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 TIM Participacoes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TIM Participacoes has no effect on the direction of Stepan i.e., Stepan and TIM Participacoes go up and down completely randomly.

Pair Corralation between Stepan and TIM Participacoes

Considering the 90-day investment horizon Stepan Company is expected to generate 1.1 times more return on investment than TIM Participacoes. However, Stepan is 1.1 times more volatile than TIM Participacoes SA. It trades about 0.15 of its potential returns per unit of risk. TIM Participacoes SA is currently generating about 0.16 per unit of risk. If you would invest  4,683  in Stepan Company on April 20, 2025 and sell it today you would earn a total of  945.00  from holding Stepan Company or generate 20.18% return on investment over 90 days.

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

Stepan Company  vs.  TIM Participacoes SA

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.

TIM Participacoes

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TIM Participacoes SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, TIM Participacoes sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepan and TIM Participacoes

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

The idea behind Stepan Company and TIM Participacoes SA 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.