Correlation Between Balchem and Penn National

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

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

Diversification Opportunities for Balchem and Penn National

0.66

Correlation Coefficient

Balchem  Penn National

Poor diversification

The 3 months correlation between Balchem and Penn is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Penn National Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penn National Gaming 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 Penn National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penn National Gaming has no effect on the direction of Balchem i.e., Balchem and Penn National go up and down completely randomly.

Pair Corralation between Balchem and Penn National

Given the investment horizon of 90 days Balchem is expected to under-perform the Penn National. But the stock apears to be less risky and, when comparing its historical volatility, Balchem is 1.99 times less risky than Penn National. The stock trades about -0.06 of its potential returns per unit of risk. The Penn National Gaming is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,848  in Penn National Gaming on October 8, 2024 and sell it today you would earn a total of  28.00  from holding Penn National Gaming or generate 1.52% return on investment over 90 days.

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

Balchem  vs.  Penn National Gaming

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 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.

Penn National Gaming

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penn National Gaming are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Penn National is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Balchem and Penn National

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

The idea behind Balchem and Penn National Gaming 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.