Correlation Between Sensient Technologies and Element Solutions

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

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

Diversification Opportunities for Sensient Technologies and Element Solutions

0.73

Correlation Coefficient

Sensient Technologies  Element Solutions

Poor diversification

The 3 months correlation between Sensient and Element is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions 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 Element Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Solutions has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Element Solutions go up and down completely randomly.

Pair Corralation between Sensient Technologies and Element Solutions

Considering the 90-day investment horizon Sensient Technologies is expected to under-perform the Element Solutions. In addition to that, Sensient Technologies is 1.73 times more volatile than Element Solutions. It trades about -0.11 of its total potential returns per unit of risk. Element Solutions is currently generating about -0.02 per unit of volatility. If you would invest  2,630  in Element Solutions on November 19, 2024 and sell it today you would lose (17.00) from holding Element Solutions or give up 0.65% of portfolio value over 90 days.

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

Sensient Technologies  vs.  Element Solutions

Sensient Technologies

Risk-Adjusted Performance

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 comparatively stable basic indicators, Sensient Technologies is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Element Solutions

Risk-Adjusted Performance

Very Weak

Over the last 90 days Element Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Element Solutions is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Sensient Technologies and Element Solutions

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

The idea behind Sensient Technologies and Element Solutions 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.