Correlation Between Sensient Technologies and Westlake Chemical

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

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

Diversification Opportunities for Sensient Technologies and Westlake Chemical

0.61

Correlation Coefficient

Sensient Technologies  Westlake Chemical

Poor diversification

The 3 months correlation between Sensient and Westlake is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and Westlake Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westlake Chemical 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 Westlake Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westlake Chemical has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and Westlake Chemical go up and down completely randomly.

Pair Corralation between Sensient Technologies and Westlake Chemical

Considering the 90-day investment horizon Sensient Technologies is expected to generate 1.23 times more return on investment than Westlake Chemical. However, Sensient Technologies is 1.23 times more volatile than Westlake Chemical. It trades about 0.28 of its potential returns per unit of risk. Westlake Chemical is currently generating about -0.17 per unit of risk. If you would invest  6,694  in Sensient Technologies on February 5, 2024 and sell it today you would earn a total of  706.00  from holding Sensient Technologies or generate 10.55% return on investment over 90 days.

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

Sensient Technologies  vs.  Westlake Chemical

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.

Westlake Chemical

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Westlake Chemical are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, Westlake Chemical may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Sensient Technologies and Westlake Chemical

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

The idea behind Sensient Technologies and Westlake Chemical 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.