Correlation Between Sensient Technologies and Harley Davidson

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

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

Diversification Opportunities for Sensient Technologies and Harley Davidson

0.67

Correlation Coefficient

Sensient Technologies  Harley Davidson

Poor diversification

The 3 months correlation between Sensient and Harley is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Harley Davidson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harley Davidson 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 Harley Davidson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harley Davidson has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Harley Davidson go up and down completely randomly.

Pair Corralation between Sensient Technologies and Harley Davidson

Considering the 90-day investment horizon Sensient Technologies is expected to generate 0.65 times more return on investment than Harley Davidson. However, Sensient Technologies is 1.54 times less risky than Harley Davidson. It trades about 0.05 of its potential returns per unit of risk. Harley Davidson is currently generating about -0.01 per unit of risk. If you would invest  6,015  in Sensient Technologies on October 9, 2024 and sell it today you would earn a total of  925.00  from holding Sensient Technologies or generate 15.38% 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.  Harley Davidson

Sensient Technologies

Risk-Adjusted Performance

0 of 100

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 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.

Harley Davidson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harley Davidson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Sensient Technologies and Harley Davidson

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

The idea behind Sensient Technologies and Harley Davidson 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.