Correlation Between Sensient Technologies and Balchem
Can any of the company-specific risk be diversified away by investing in both Sensient Technologies and Balchem 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 Balchem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sensient Technologies and Balchem, you can compare the effects of market volatilities on Sensient Technologies and Balchem 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 Balchem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sensient Technologies and Balchem.
Diversification Opportunities for Sensient Technologies and Balchem
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sensient and Balchem is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem 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 Balchem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balchem has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Balchem go up and down completely randomly.
Pair Corralation between Sensient Technologies and Balchem
Considering the 90-day investment horizon Sensient Technologies is expected to generate 3.36 times less return on investment than Balchem. But when comparing it to its historical volatility, Sensient Technologies is 1.02 times less risky than Balchem. It trades about 0.03 of its potential returns per unit of risk. Balchem is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 15,203 in Balchem on August 24, 2024 and sell it today you would earn a total of 2,828 from holding Balchem or generate 18.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sensient Technologies vs. Balchem
Performance |
| Timeline |
| Sensient Technologies |
| Balchem |
Sensient Technologies and Balchem Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sensient Technologies and Balchem
The main advantage of trading using opposite Sensient Technologies and Balchem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sensient Technologies position performs unexpectedly, Balchem 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 Balchem will offset losses from the drop in Balchem's long position.| Sensient Technologies vs. Innospec | Sensient Technologies vs. Minerals Technologies | Sensient Technologies vs. Oil Dri | Sensient Technologies vs. H B Fuller |
| Balchem vs. Sensient Technologies | Balchem vs. Innospec | Balchem vs. Minerals Technologies | Balchem vs. Oil Dri |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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