Correlation Between JD Sports and Sensient Technologies

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

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

Diversification Opportunities for JD Sports and Sensient Technologies

0.37

Correlation Coefficient

JD Sports  Sensient Technologies

Weak diversification

The 3 months correlation between JDDSF and Sensient is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding JD Sports Fashion and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies and JD Sports 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 JD Sports Fashion 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 JD Sports i.e., JD Sports and Sensient Technologies go up and down completely randomly.

Pair Corralation between JD Sports and Sensient Technologies

Assuming the 90 days horizon JD Sports Fashion is expected to generate 1.97 times more return on investment than Sensient Technologies. However, JD Sports is 1.97 times more volatile than Sensient Technologies. It trades about -0.04 of its potential returns per unit of risk. Sensient Technologies is currently generating about -0.09 per unit of risk. If you would invest  159.00  in JD Sports Fashion on October 5, 2024 and sell it today you would lose (13.00) from holding JD Sports Fashion or give up 8.18% of portfolio value over 90 days.

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

JD Sports Fashion  vs.  Sensient Technologies

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, JD Sports is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sensient Technologies

Risk-Adjusted Performance

0 of 100

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 JD Sports and Sensient Technologies

The main advantage of trading using opposite JD Sports and Sensient Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JD Sports 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 JD Sports Fashion 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.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.