Correlation Between Mesa Laboratories and Sensata Technologies

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

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

Diversification Opportunities for Mesa Laboratories and Sensata Technologies

-0.61

Correlation Coefficient

Mesa Laboratories  Sensata Technologies

Excellent diversification

The 3 months correlation between Mesa and Sensata is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Mesa Laboratories and Sensata Technologies Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensata Technologies and Mesa Laboratories 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 Mesa Laboratories 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 Mesa Laboratories i.e., Mesa Laboratories and Sensata Technologies go up and down completely randomly.

Pair Corralation between Mesa Laboratories and Sensata Technologies

Given the investment horizon of 90 days Mesa Laboratories is expected to generate 1.36 times more return on investment than Sensata Technologies. However, Mesa Laboratories is 1.36 times more volatile than Sensata Technologies Holding. It trades about 0.15 of its potential returns per unit of risk. Sensata Technologies Holding is currently generating about -0.06 per unit of risk. If you would invest  11,714  in Mesa Laboratories on November 28, 2024 and sell it today you would earn a total of  2,722  from holding Mesa Laboratories or generate 23.24% return on investment over 90 days.

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

Mesa Laboratories  vs.  Sensata Technologies Holding

Mesa Laboratories

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mesa Laboratories are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Mesa Laboratories sustained solid returns over the last few months and may actually be approaching a breakup point.

Sensata Technologies

Risk-Adjusted Performance

Very 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 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 Mesa Laboratories and Sensata Technologies

The main advantage of trading using opposite Mesa Laboratories and Sensata Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mesa Laboratories 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 Mesa Laboratories 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.