Correlation Between Balchem and Eastman Chemical

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

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

Diversification Opportunities for Balchem and Eastman Chemical

0.3

Correlation Coefficient

Balchem  Eastman Chemical

Weak diversification

The 3 months correlation between Balchem and Eastman is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Eastman Chemical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastman Chemical 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 Eastman Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastman Chemical has no effect on the direction of Balchem i.e., Balchem and Eastman Chemical go up and down completely randomly.

Pair Corralation between Balchem and Eastman Chemical

Given the investment horizon of 90 days Balchem is expected to generate 0.75 times more return on investment than Eastman Chemical. However, Balchem is 1.33 times less risky than Eastman Chemical. It trades about 0.02 of its potential returns per unit of risk. Eastman Chemical is currently generating about 0.0 per unit of risk. If you would invest  16,397  in Balchem on December 29, 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 Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Balchem  vs.  Eastman Chemical

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.

Eastman Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastman Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Eastman Chemical is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Balchem and Eastman Chemical

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

The idea behind Balchem and Eastman 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.