Correlation Between Balchem and Innospec

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

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

Diversification Opportunities for Balchem and Innospec

0.87

Correlation Coefficient

Balchem  Innospec

Very poor diversification

The 3 months correlation between Balchem and Innospec is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec 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 Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Balchem i.e., Balchem and Innospec go up and down completely randomly.

Pair Corralation between Balchem and Innospec

Given the investment horizon of 90 days Balchem is expected to generate 1.41 times less return on investment than Innospec. But when comparing it to its historical volatility, Balchem is 1.48 times less risky than Innospec. It trades about 0.06 of its potential returns per unit of risk. Innospec is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  11,106  in Innospec on September 3, 2024 and sell it today you would earn a total of  755.00  from holding Innospec or generate 6.8% return on investment over 90 days.

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

Balchem  vs.  Innospec

Balchem

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Balchem are ranked lower than 4 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Innospec

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Innospec are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Innospec may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Balchem and Innospec

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

The idea behind Balchem and Innospec 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.