Correlation Between Balchem and BBB Foods

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

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

Diversification Opportunities for Balchem and BBB Foods

0.23

Correlation Coefficient

Balchem  BBB Foods

Modest diversification

The 3 months correlation between Balchem and BBB is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods 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 BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of Balchem i.e., Balchem and BBB Foods go up and down completely randomly.

Pair Corralation between Balchem and BBB Foods

Given the investment horizon of 90 days Balchem is expected to generate 6.87 times less return on investment than BBB Foods. But when comparing it to its historical volatility, Balchem is 2.02 times less risky than BBB Foods. It trades about 0.03 of its potential returns per unit of risk. BBB Foods is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,750  in BBB Foods on October 27, 2024 and sell it today you would earn a total of  1,332  from holding BBB Foods or generate 76.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	48.79%
Values	Daily Returns

Balchem  vs.  BBB Foods

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.

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Balchem and BBB Foods

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

The idea behind Balchem and BBB Foods 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.