Correlation Between Balchem and Cabot

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

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

Diversification Opportunities for Balchem and Cabot

-0.33

Correlation Coefficient

Balchem  Cabot

Very good diversification

The 3 months correlation between Balchem and Cabot is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot 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 Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of Balchem i.e., Balchem and Cabot go up and down completely randomly.

Pair Corralation between Balchem and Cabot

Given the investment horizon of 90 days Balchem is expected to generate 0.84 times more return on investment than Cabot. However, Balchem is 1.19 times less risky than Cabot. It trades about 0.02 of its potential returns per unit of risk. Cabot is currently generating about -0.06 per unit of risk. If you would invest  16,397  in Balchem on December 28, 2024 and sell it today you would earn a total of  214.00  from holding Balchem or generate 1.31% return on investment over 90 days.

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

Balchem  vs.  Cabot

Balchem

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Balchem are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Cabot

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cabot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Balchem and Cabot

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

The idea behind Balchem and Cabot 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.