Correlation Between 5E Advanced and Sensient Technologies

Can any of the company-specific risk be diversified away by investing in both 5E Advanced 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 5E Advanced and Sensient Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 5E Advanced Materials and Sensient Technologies, you can compare the effects of market volatilities on 5E Advanced 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 5E Advanced with a short position of Sensient Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of 5E Advanced and Sensient Technologies.

Diversification Opportunities for 5E Advanced and Sensient Technologies

-0.53

Correlation Coefficient

5E Advanced  Sensient Technologies

Excellent diversification

The 3 months correlation between FEAM and Sensient is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding 5E Advanced Materials and Sensient Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sensient Technologies and 5E Advanced 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 5E Advanced Materials 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 5E Advanced i.e., 5E Advanced and Sensient Technologies go up and down completely randomly.

Pair Corralation between 5E Advanced and Sensient Technologies

Given the investment horizon of 90 days 5E Advanced Materials is expected to under-perform the Sensient Technologies. In addition to that, 5E Advanced is 4.06 times more volatile than Sensient Technologies. It trades about -0.14 of its total potential returns per unit of risk. Sensient Technologies is currently generating about 0.05 per unit of volatility. If you would invest  7,390  in Sensient Technologies on August 21, 2024 and sell it today you would earn a total of  318.00  from holding Sensient Technologies or generate 4.3% return on investment over 90 days.

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

5E Advanced Materials  vs.  Sensient Technologies

5E Advanced Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days 5E Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Sensient Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sensient Technologies are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Sensient Technologies is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with 5E Advanced and Sensient Technologies

The main advantage of trading using opposite 5E Advanced and Sensient Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 5E Advanced 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 5E Advanced Materials 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.