Correlation Between Sensient Technologies and Select Energy

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

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

Diversification Opportunities for Sensient Technologies and Select Energy

0.38

Correlation Coefficient

Sensient Technologies  Select Energy

Weak diversification

The 3 months correlation between Sensient and Select is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Select Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Energy Services 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 Select Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Energy Services has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Select Energy go up and down completely randomly.

Pair Corralation between Sensient Technologies and Select Energy

Considering the 90-day investment horizon Sensient Technologies is expected to generate 4.01 times less return on investment than Select Energy. But when comparing it to its historical volatility, Sensient Technologies is 1.64 times less risky than Select Energy. It trades about 0.02 of its potential returns per unit of risk. Select Energy Services is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  882.00  in Select Energy Services on September 14, 2024 and sell it today you would earn a total of  578.00  from holding Select Energy Services or generate 65.53% return on investment over 90 days.

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

Sensient Technologies  vs.  Select Energy Services

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.

Select Energy Services

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Select Energy Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Select Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sensient Technologies and Select Energy

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

The idea behind Sensient Technologies and Select Energy Services 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.