Correlation Between Balchem and Ingevity Corp

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

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

Diversification Opportunities for Balchem and Ingevity Corp

0.87

Correlation Coefficient

Balchem  Ingevity Corp

Very poor diversification

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

Pair Corralation between Balchem and Ingevity Corp

Given the investment horizon of 90 days Balchem is expected to generate 5.42 times less return on investment than Ingevity Corp. But when comparing it to its historical volatility, Balchem is 3.16 times less risky than Ingevity Corp. It trades about 0.06 of its potential returns per unit of risk. Ingevity Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,811  in Ingevity Corp on September 2, 2024 and sell it today you would earn a total of  1,046  from holding Ingevity Corp or generate 27.45% return on investment over 90 days.

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

Balchem  vs.  Ingevity Corp

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Ingevity Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ingevity Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Ingevity Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Balchem and Ingevity Corp

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

The idea behind Balchem and Ingevity Corp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.