Correlation Between Sensient Technologies and Avoca LLC

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

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

Diversification Opportunities for Sensient Technologies and Avoca LLC

-0.29

Correlation Coefficient

Sensient Technologies  Avoca LLC

Very good diversification

The 3 months correlation between Sensient and Avoca is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Avoca LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avoca LLC 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 Avoca LLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avoca LLC has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Avoca LLC go up and down completely randomly.

Pair Corralation between Sensient Technologies and Avoca LLC

Considering the 90-day investment horizon Sensient Technologies is expected to generate 1.16 times less return on investment than Avoca LLC. But when comparing it to its historical volatility, Sensient Technologies is 2.31 times less risky than Avoca LLC. It trades about 0.02 of its potential returns per unit of risk. Avoca LLC is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  130,000  in Avoca LLC on September 15, 2024 and sell it today you would lose (2,500) from holding Avoca LLC or give up 1.92% of portfolio value over 90 days.

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

Sensient Technologies  vs.  Avoca LLC

Sensient Technologies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sensient Technologies are ranked lower than 3 (%) 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.

Avoca LLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avoca LLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Avoca LLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Sensient Technologies and Avoca LLC

The main advantage of trading using opposite Sensient Technologies and Avoca LLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sensient Technologies position performs unexpectedly, Avoca LLC 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 Avoca LLC will offset losses from the drop in Avoca LLC's long position.

The idea behind Sensient Technologies and Avoca LLC 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.