Correlation Between Sensient Technologies and Neo Performance

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

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

Diversification Opportunities for Sensient Technologies and Neo Performance

0.49

Correlation Coefficient

Sensient Technologies  Neo Performance

Very weak diversification

The 3 months correlation between Sensient and Neo is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Neo Performance Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neo Performance Materials 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 Neo Performance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neo Performance Materials has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Neo Performance go up and down completely randomly.

Pair Corralation between Sensient Technologies and Neo Performance

Considering the 90-day investment horizon Sensient Technologies is expected to generate 3.15 times less return on investment than Neo Performance. But when comparing it to its historical volatility, Sensient Technologies is 2.11 times less risky than Neo Performance. It trades about 0.05 of its potential returns per unit of risk. Neo Performance Materials is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  551.00  in Neo Performance Materials on December 28, 2024 and sell it today you would earn a total of  64.00  from holding Neo Performance Materials or generate 11.62% return on investment over 90 days.

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

Sensient Technologies  vs.  Neo Performance Materials

Sensient Technologies

Risk-Adjusted Performance

Weak

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.

Neo Performance Materials

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Neo Performance Materials are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Neo Performance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sensient Technologies and Neo Performance

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

The idea behind Sensient Technologies and Neo Performance Materials 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.