Correlation Between Sensient Technologies and Orica

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

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

Diversification Opportunities for Sensient Technologies and Orica

-0.18

Correlation Coefficient

Sensient Technologies  Orica

Good diversification

The 3 months correlation between Sensient and Orica is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Orica Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orica Limited 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 Orica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orica Limited has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Orica go up and down completely randomly.

Pair Corralation between Sensient Technologies and Orica

Considering the 90-day investment horizon Sensient Technologies is expected to generate 2.7 times less return on investment than Orica. But when comparing it to its historical volatility, Sensient Technologies is 1.25 times less risky than Orica. It trades about 0.02 of its potential returns per unit of risk. Orica Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  855.00  in Orica Limited on September 14, 2024 and sell it today you would earn a total of  205.00  from holding Orica Limited or generate 23.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	59.72%
Values	Daily Returns

Sensient Technologies  vs.  Orica Limited

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Orica Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orica Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Orica is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sensient Technologies and Orica

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

The idea behind Sensient Technologies and Orica Limited 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.