Correlation Between Cabot and Sensient Technologies

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

By analyzing existing cross correlation between Cabot and Sensient Technologies, you can compare the effects of market volatilities on Cabot and Sensient Technologies 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 Cabot with a short position of Sensient Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cabot and Sensient Technologies.

Diversification Opportunities for Cabot and Sensient Technologies

0.62

Correlation Coefficient

Cabot  Sensient Technologies

Poor diversification

The 3 months correlation between Cabot and Sensient is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Cabot and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies and Cabot 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 Cabot are associated (or correlated) with Sensient Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sensient Technologies has no effect on the direction of Cabot i.e., Cabot and Sensient Technologies go up and down completely randomly.

Pair Corralation between Cabot and Sensient Technologies

Considering the 90-day investment horizon Cabot is expected to under-perform the Sensient Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Cabot is 1.03 times less risky than Sensient Technologies. The stock trades about -0.24 of its potential returns per unit of risk. The Sensient Technologies is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  7,722  in Sensient Technologies on November 28, 2024 and sell it today you would lose (698.00) from holding Sensient Technologies or give up 9.04% of portfolio value over 90 days.

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

Cabot  vs.  Sensient Technologies

Cabot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cabot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Sensient Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sensient Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Cabot and Sensient Technologies

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

The idea behind Cabot and Sensient Technologies 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.