Correlation Between Sensient Technologies and Stepan
Can any of the company-specific risk be diversified away by investing in both Sensient Technologies and Stepan 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 Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sensient Technologies and Stepan Company, you can compare the effects of market volatilities on Sensient Technologies and Stepan 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 Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sensient Technologies and Stepan.
Diversification Opportunities for Sensient Technologies and Stepan
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sensient and Stepan is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Stepan go up and down completely randomly.
Pair Corralation between Sensient Technologies and Stepan
Considering the 90-day investment horizon Sensient Technologies is expected to generate 1.06 times more return on investment than Stepan. However, Sensient Technologies is 1.06 times more volatile than Stepan Company. It trades about -0.06 of its potential returns per unit of risk. Stepan Company is currently generating about -0.07 per unit of risk. If you would invest 7,332 in Sensient Technologies on November 18, 2024 and sell it today you would lose (209.00) from holding Sensient Technologies or give up 2.85% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sensient Technologies vs. Stepan Company
Performance |
| Timeline |
| Sensient Technologies |
| Stepan Company |
Sensient Technologies and Stepan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sensient Technologies and Stepan
The main advantage of trading using opposite Sensient Technologies and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sensient Technologies position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan's long position.| Sensient Technologies vs. Innospec | Sensient Technologies vs. Minerals Technologies | Sensient Technologies vs. Oil Dri | Sensient Technologies vs. H B Fuller |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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