Correlation Between Sensient Technologies and Union Electric

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

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

Diversification Opportunities for Sensient Technologies and Union Electric

0.09

Correlation Coefficient

Sensient Technologies  Union Electric

Significant diversification

The 3 months correlation between Sensient and Union is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Union Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Union Electric 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 Union Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Union Electric has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Union Electric go up and down completely randomly.

Pair Corralation between Sensient Technologies and Union Electric

Considering the 90-day investment horizon Sensient Technologies is expected to under-perform the Union Electric. But the stock apears to be less risky and, when comparing its historical volatility, Sensient Technologies is 1.82 times less risky than Union Electric. The stock trades about -0.11 of its potential returns per unit of risk. The Union Electric is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  9,601  in Union Electric on December 2, 2024 and sell it today you would lose (501.00) from holding Union Electric or give up 5.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	67.21%
Values	Daily Returns

Sensient Technologies  vs.  Union Electric

Sensient Technologies

Risk-Adjusted Performance

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.

Union Electric

Risk-Adjusted Performance

Very Weak

Over the last 90 days Union Electric has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Union Electric is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Sensient Technologies and Union Electric

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

The idea behind Sensient Technologies and Union Electric 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.