Correlation Between Ecolab and Sensient Technologies
Can any of the company-specific risk be diversified away by investing in both Ecolab 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 Ecolab and Sensient Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ecolab Inc and Sensient Technologies, you can compare the effects of market volatilities on Ecolab 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 Ecolab with a short position of Sensient Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ecolab and Sensient Technologies.
Diversification Opportunities for Ecolab and Sensient Technologies
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Ecolab and Sensient is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Ecolab Inc and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies and Ecolab 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 Ecolab 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 Ecolab i.e., Ecolab and Sensient Technologies go up and down completely randomly.
Pair Corralation between Ecolab and Sensient Technologies
Considering the 90-day investment horizon Ecolab is expected to generate 1.93 times less return on investment than Sensient Technologies. But when comparing it to its historical volatility, Ecolab Inc is 1.37 times less risky than Sensient Technologies. It trades about 0.06 of its potential returns per unit of risk. Sensient Technologies is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 6,398 in Sensient Technologies on August 25, 2024 and sell it today you would earn a total of 1,469 from holding Sensient Technologies or generate 22.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ecolab Inc vs. Sensient Technologies
Performance |
| Timeline |
| Ecolab Inc |
| Sensient Technologies |
Ecolab and Sensient Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ecolab and Sensient Technologies
The main advantage of trading using opposite Ecolab and Sensient Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ecolab 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.| Ecolab vs. Linde plc Ordinary | Ecolab vs. PPG Industries | Ecolab vs. Sherwin Williams Co | Ecolab vs. LyondellBasell Industries NV |
| 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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