Correlation Between Sensient Technologies and Ecolab

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

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

Diversification Opportunities for Sensient Technologies and Ecolab

0.09

Correlation Coefficient

Sensient Technologies  Ecolab

Significant diversification

The 3 months correlation between Sensient and Ecolab is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc and Sensient 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 Sensient Technologies are associated (or correlated) with Ecolab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecolab Inc has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Ecolab go up and down completely randomly.

Pair Corralation between Sensient Technologies and Ecolab

Considering the 90-day investment horizon Sensient Technologies is expected to generate 1.28 times less return on investment than Ecolab. In addition to that, Sensient Technologies is 1.3 times more volatile than Ecolab Inc. It trades about 0.08 of its total potential returns per unit of risk. Ecolab Inc is currently generating about 0.14 per unit of volatility. If you would invest  15,756  in Ecolab Inc on September 17, 2024 and sell it today you would earn a total of  9,167  from holding Ecolab Inc or generate 58.18% return on investment over 90 days.

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

Sensient Technologies  vs.  Ecolab Inc

Sensient Technologies

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sensient Technologies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Sensient Technologies is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Ecolab Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ecolab Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Ecolab is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Sensient Technologies and Ecolab

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

The idea behind Sensient Technologies and Ecolab Inc 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.