Correlation Between Sensient Technologies and NL Industries

Can any of the company-specific risk be diversified away by investing in both Sensient Technologies and NL 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 NL 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 NL Industries, you can compare the effects of market volatilities on Sensient Technologies and NL 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 NL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sensient Technologies and NL Industries.

Diversification Opportunities for Sensient Technologies and NL Industries

0.3

Correlation Coefficient

Sensient Technologies  NL Industries

Weak diversification

The 3 months correlation between Sensient and NL Industries is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL 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 NL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NL Industries has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and NL Industries go up and down completely randomly.

Pair Corralation between Sensient Technologies and NL Industries

Considering the 90-day investment horizon Sensient Technologies is expected to generate 0.5 times more return on investment than NL Industries. However, Sensient Technologies is 1.99 times less risky than NL Industries. It trades about 0.05 of its potential returns per unit of risk. NL Industries is currently generating about 0.02 per unit of risk. If you would invest  7,061  in Sensient Technologies on December 30, 2024 and sell it today you would earn a total of  299.00  from holding Sensient Technologies or generate 4.23% return on investment over 90 days.

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

Sensient Technologies  vs.  NL Industries

Sensient Technologies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sensient Technologies are ranked lower than 3 (%) 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.

NL Industries

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NL Industries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, NL Industries is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Sensient Technologies and NL Industries

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

The idea behind Sensient Technologies and NL 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.

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 Transaction History module to view history of all your transactions and understand their impact on performance.