Correlation Between Level 3 and Sensient Technologies

Can any of the company-specific risk be diversified away by investing in both Level 3 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 Level 3 and Sensient Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Level 3 Communications and Sensient Technologies, you can compare the effects of market volatilities on Level 3 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 Level 3 with a short position of Sensient Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Level 3 and Sensient Technologies.

Diversification Opportunities for Level 3 and Sensient Technologies

0.0

Correlation Coefficient

Level 3  Sensient Technologies

Pay attention - limited upside

The 3 months correlation between Level and Sensient is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Level 3 Communications and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies and Level 3 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 Level 3 Communications 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 Level 3 i.e., Level 3 and Sensient Technologies go up and down completely randomly.

Pair Corralation between Level 3 and Sensient Technologies

If you would invest  6,583  in Sensient Technologies on February 5, 2024 and sell it today you would earn a total of  817.00  from holding Sensient Technologies or generate 12.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Level 3 Communications  vs.  Sensient Technologies

Level 3 Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Level 3 Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Level 3 is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 unfluctuating basic indicators, Sensient Technologies unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Level 3 and Sensient Technologies

The main advantage of trading using opposite Level 3 and Sensient Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Level 3 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 Level 3 Communications 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.