Correlation Between ESCO Technologies and Sensata Technologies

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

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

Diversification Opportunities for ESCO Technologies and Sensata Technologies

0.29

Correlation Coefficient

ESCO Technologies  Sensata Technologies

Modest diversification

The 3 months correlation between ESCO and Sensata is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding ESCO Technologies and Sensata Technologies Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensata Technologies and ESCO Technologies 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 ESCO Technologies are associated (or correlated) with Sensata Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sensata Technologies has no effect on the direction of ESCO Technologies i.e., ESCO Technologies and Sensata Technologies go up and down completely randomly.

Pair Corralation between ESCO Technologies and Sensata Technologies

Considering the 90-day investment horizon ESCO Technologies is expected to generate 1.34 times more return on investment than Sensata Technologies. However, ESCO Technologies is 1.34 times more volatile than Sensata Technologies Holding. It trades about 0.11 of its potential returns per unit of risk. Sensata Technologies Holding is currently generating about -0.02 per unit of risk. If you would invest  13,447  in ESCO Technologies on December 27, 2024 and sell it today you would earn a total of  2,511  from holding ESCO Technologies or generate 18.67% return on investment over 90 days.

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

ESCO Technologies  vs.  Sensata Technologies Holding

ESCO Technologies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESCO Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ESCO Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sensata Technologies

Risk-Adjusted Performance

Weak

Over the last 90 days Sensata Technologies Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sensata Technologies is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ESCO Technologies and Sensata Technologies

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

The idea behind ESCO Technologies and Sensata Technologies Holding 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 Managers module to screen money managers from public funds and ETFs managed around the world.