Correlation Between Balchem and American Vanguard

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

By analyzing existing cross correlation between Balchem and American Vanguard, you can compare the effects of market volatilities on Balchem and American Vanguard 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 Balchem with a short position of American Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balchem and American Vanguard.

Diversification Opportunities for Balchem and American Vanguard

0.8

Correlation Coefficient

Balchem  American Vanguard

Very poor diversification

The 3 months correlation between Balchem and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and American Vanguard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Vanguard and Balchem 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 Balchem are associated (or correlated) with American Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Vanguard has no effect on the direction of Balchem i.e., Balchem and American Vanguard go up and down completely randomly.

Pair Corralation between Balchem and American Vanguard

Given the investment horizon of 90 days Balchem is expected to generate 0.41 times more return on investment than American Vanguard. However, Balchem is 2.47 times less risky than American Vanguard. It trades about -0.41 of its potential returns per unit of risk. American Vanguard is currently generating about -0.34 per unit of risk. If you would invest  17,504  in Balchem on October 8, 2024 and sell it today you would lose (1,596) from holding Balchem or give up 9.12% of portfolio value over 90 days.

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

Balchem  vs.  American Vanguard

Balchem

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Balchem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Balchem is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

American Vanguard

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Vanguard has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Balchem and American Vanguard

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

The idea behind Balchem and American Vanguard 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 Stocks Directory module to find actively traded stocks across global markets.