Correlation Between Sensient Technologies and First Community

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

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

Diversification Opportunities for Sensient Technologies and First Community

0.68

Correlation Coefficient

Sensient Technologies  First Community

Poor diversification

The 3 months correlation between Sensient and First is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and First Community Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community Banc 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 First Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community Banc has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and First Community go up and down completely randomly.

Pair Corralation between Sensient Technologies and First Community

Considering the 90-day investment horizon Sensient Technologies is expected to generate 0.94 times more return on investment than First Community. However, Sensient Technologies is 1.07 times less risky than First Community. It trades about 0.02 of its potential returns per unit of risk. First Community Bancshares is currently generating about -0.07 per unit of risk. If you would invest  7,294  in Sensient Technologies on December 20, 2024 and sell it today you would earn a total of  94.00  from holding Sensient Technologies or generate 1.29% return on investment over 90 days.

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

Sensient Technologies  vs.  First Community Bancshares

Sensient Technologies

Risk-Adjusted Performance

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

First Community Banc

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Community Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Sensient Technologies and First Community

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

The idea behind Sensient Technologies and First Community Bancshares 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.