Correlation Between Diamond Estates and Sensient Technologies
Can any of the company-specific risk be diversified away by investing in both Diamond Estates 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 Diamond Estates and Sensient Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diamond Estates Wines and Sensient Technologies, you can compare the effects of market volatilities on Diamond Estates 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 Diamond Estates with a short position of Sensient Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diamond Estates and Sensient Technologies.
Diversification Opportunities for Diamond Estates and Sensient Technologies
0.0 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Diamond and Sensient is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Estates Wines and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies and Diamond Estates 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 Diamond Estates Wines 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 Diamond Estates i.e., Diamond Estates and Sensient Technologies go up and down completely randomly.
Pair Corralation between Diamond Estates and Sensient Technologies
Assuming the 90 days horizon Diamond Estates is expected to generate 4.4 times less return on investment than Sensient Technologies. But when comparing it to its historical volatility, Diamond Estates Wines is 1.64 times less risky than Sensient Technologies. It trades about 0.03 of its potential returns per unit of risk. Sensient Technologies is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 5,836 in Sensient Technologies on August 27, 2024 and sell it today you would earn a total of 2,031 from holding Sensient Technologies or generate 34.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diamond Estates Wines vs. Sensient Technologies
Performance |
| Timeline |
| Diamond Estates Wines |
| Sensient Technologies |
Diamond Estates and Sensient Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diamond Estates and Sensient Technologies
The main advantage of trading using opposite Diamond Estates and Sensient Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Estates 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 Diamond Estates Wines 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.| Sensient Technologies vs. Minerals Technologies | Sensient Technologies vs. Oil Dri | Sensient Technologies vs. H B Fuller | Sensient Technologies vs. Northern Technologies |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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