Correlation Between Balchem and Luxfer Holdings

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

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

Diversification Opportunities for Balchem and Luxfer Holdings

0.72

Correlation Coefficient

Balchem  Luxfer Holdings

Poor diversification

The 3 months correlation between Balchem and Luxfer is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Luxfer Holdings PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luxfer Holdings PLC 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 Luxfer Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luxfer Holdings PLC has no effect on the direction of Balchem i.e., Balchem and Luxfer Holdings go up and down completely randomly.

Pair Corralation between Balchem and Luxfer Holdings

Given the investment horizon of 90 days Balchem is expected to generate 3.41 times less return on investment than Luxfer Holdings. But when comparing it to its historical volatility, Balchem is 1.75 times less risky than Luxfer Holdings. It trades about 0.03 of its potential returns per unit of risk. Luxfer Holdings PLC is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  972.00  in Luxfer Holdings PLC on October 12, 2024 and sell it today you would earn a total of  286.00  from holding Luxfer Holdings PLC or generate 29.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.47%
Values	Daily Returns

Balchem  vs.  Luxfer Holdings PLC

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 latest uncertain 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.

Luxfer Holdings PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luxfer Holdings PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Luxfer Holdings is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Balchem and Luxfer Holdings

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

The idea behind Balchem and Luxfer Holdings PLC 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.