Correlation Between CONSTELLATION and Sensient Technologies

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

By analyzing existing cross correlation between CONSTELLATION BRANDS INC and Sensient Technologies, you can compare the effects of market volatilities on CONSTELLATION and Sensient Technologies 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 CONSTELLATION with a short position of Sensient Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of CONSTELLATION and Sensient Technologies.

Diversification Opportunities for CONSTELLATION and Sensient Technologies

0.24

Correlation Coefficient

CONSTELLATION  Sensient Technologies

Modest diversification

The 3 months correlation between CONSTELLATION and Sensient is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding CONSTELLATION BRANDS INC and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies and CONSTELLATION 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 CONSTELLATION BRANDS INC are associated (or correlated) with Sensient Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sensient Technologies has no effect on the direction of CONSTELLATION i.e., CONSTELLATION and Sensient Technologies go up and down completely randomly.

Pair Corralation between CONSTELLATION and Sensient Technologies

Assuming the 90 days trading horizon CONSTELLATION is expected to generate 4.35 times less return on investment than Sensient Technologies. But when comparing it to its historical volatility, CONSTELLATION BRANDS INC is 3.87 times less risky than Sensient Technologies. It trades about 0.01 of its potential returns per unit of risk. Sensient Technologies is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  7,002  in Sensient Technologies on October 21, 2024 and sell it today you would earn a total of  370.00  from holding Sensient Technologies or generate 5.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.97%
Values	Daily Returns

CONSTELLATION BRANDS INC  vs.  Sensient Technologies

CONSTELLATION BRANDS INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CONSTELLATION BRANDS INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CONSTELLATION is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 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.

Pair Trading with CONSTELLATION and Sensient Technologies

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

The idea behind CONSTELLATION BRANDS INC and Sensient Technologies 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.