Correlation Between Sono Tek and Sensata Technologies

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

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

Diversification Opportunities for Sono Tek and Sensata Technologies

-0.18

Correlation Coefficient

Sono Tek  Sensata Technologies

Good diversification

The 3 months correlation between Sono and Sensata is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Sono Tek Corp and Sensata Technologies Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensata Technologies and Sono Tek 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 Sono Tek Corp 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 Sono Tek i.e., Sono Tek and Sensata Technologies go up and down completely randomly.

Pair Corralation between Sono Tek and Sensata Technologies

Given the investment horizon of 90 days Sono Tek Corp is expected to under-perform the Sensata Technologies. In addition to that, Sono Tek is 1.21 times more volatile than Sensata Technologies Holding. It trades about -0.09 of its total potential returns per unit of risk. Sensata Technologies Holding is currently generating about 0.02 per unit of volatility. If you would invest  2,725  in Sensata Technologies Holding on December 27, 2024 and sell it today you would earn a total of  21.00  from holding Sensata Technologies Holding or generate 0.77% return on investment over 90 days.

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

Sono Tek Corp  vs.  Sensata Technologies Holding

Sono Tek Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sono Tek Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Sensata Technologies

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sensata Technologies Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Sono Tek and Sensata Technologies

The main advantage of trading using opposite Sono Tek and Sensata Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sono Tek 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 Sono Tek Corp 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.