Correlation Between Balchem and Summit Therapeutics

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

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

Diversification Opportunities for Balchem and Summit Therapeutics

0.18

Correlation Coefficient

Balchem  Summit Therapeutics

Average diversification

The 3 months correlation between Balchem and Summit is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Summit Therapeutics PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Therapeutics 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 Summit Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Therapeutics PLC has no effect on the direction of Balchem i.e., Balchem and Summit Therapeutics go up and down completely randomly.

Pair Corralation between Balchem and Summit Therapeutics

Given the investment horizon of 90 days Balchem is expected to generate 38.69 times less return on investment than Summit Therapeutics. But when comparing it to its historical volatility, Balchem is 14.7 times less risky than Summit Therapeutics. It trades about 0.03 of its potential returns per unit of risk. Summit Therapeutics PLC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  366.00  in Summit Therapeutics PLC on October 12, 2024 and sell it today you would earn a total of  1,516  from holding Summit Therapeutics PLC or generate 414.21% return on investment over 90 days.

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

Balchem  vs.  Summit Therapeutics 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.

Summit Therapeutics PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Summit Therapeutics PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Summit Therapeutics is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Balchem and Summit Therapeutics

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

The idea behind Balchem and Summit Therapeutics 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.