Correlation Between Vontier Corp and Sensata Technologies

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

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

Diversification Opportunities for Vontier Corp and Sensata Technologies

0.3

Correlation Coefficient

Vontier Corp  Sensata Technologies

Weak diversification

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

Pair Corralation between Vontier Corp and Sensata Technologies

Considering the 90-day investment horizon Vontier Corp is expected to under-perform the Sensata Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Vontier Corp is 1.42 times less risky than Sensata Technologies. The stock trades about -0.08 of its potential returns per unit of risk. The Sensata Technologies Holding is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,699  in Sensata Technologies Holding on December 28, 2024 and sell it today you would lose (224.00) from holding Sensata Technologies Holding or give up 8.3% of portfolio value over 90 days.

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

Vontier Corp  vs.  Sensata Technologies Holding

Vontier Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vontier Corp 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.

Sensata Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sensata Technologies Holding 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.

Pair Trading with Vontier Corp and Sensata Technologies

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

The idea behind Vontier Corp and Sensata Technologies Holding 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.