Correlation Between Sensient Technologies and Nabors Industries

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

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

Diversification Opportunities for Sensient Technologies and Nabors Industries

0.63

Correlation Coefficient

Sensient Technologies  Nabors Industries

Poor diversification

The 3 months correlation between Sensient and Nabors is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Nabors Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabors Industries 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 Nabors Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabors Industries has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Nabors Industries go up and down completely randomly.

Pair Corralation between Sensient Technologies and Nabors Industries

Considering the 90-day investment horizon Sensient Technologies is expected to under-perform the Nabors Industries. But the stock apears to be less risky and, when comparing its historical volatility, Sensient Technologies is 9.41 times less risky than Nabors Industries. The stock trades about -0.52 of its potential returns per unit of risk. The Nabors Industries is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  490.00  in Nabors Industries on October 6, 2024 and sell it today you would lose (50.00) from holding Nabors Industries or give up 10.2% 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.  Nabors Industries

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.

Nabors Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nabors Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Sensient Technologies and Nabors Industries

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

The idea behind Sensient Technologies and Nabors Industries 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.