Correlation Between Element Solutions and Sensient Technologies

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

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

Diversification Opportunities for Element Solutions and Sensient Technologies

0.54

Correlation Coefficient

Element Solutions  Sensient Technologies

Very weak diversification

The 3 months correlation between Element and Sensient is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Element Solutions and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies and Element Solutions 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 Element Solutions 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 Element Solutions i.e., Element Solutions and Sensient Technologies go up and down completely randomly.

Pair Corralation between Element Solutions and Sensient Technologies

Considering the 90-day investment horizon Element Solutions is expected to under-perform the Sensient Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Element Solutions is 1.11 times less risky than Sensient Technologies. The stock trades about -0.17 of its potential returns per unit of risk. The Sensient Technologies is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  6,946  in Sensient Technologies on February 8, 2024 and sell it today you would earn a total of  664.00  from holding Sensient Technologies or generate 9.56% return on investment over 90 days.

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

Element Solutions  vs.  Sensient Technologies

Element Solutions

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Element Solutions are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Element Solutions may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Sensient Technologies

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sensient Technologies are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Sensient Technologies unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Element Solutions and Sensient Technologies

The main advantage of trading using opposite Element Solutions and Sensient Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Element Solutions 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 Element Solutions 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.