Correlation Between Balchem and TRAVELERS

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

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

Diversification Opportunities for Balchem and TRAVELERS

0.44

Correlation Coefficient

Balchem  TRAVELERS

Very weak diversification

The 3 months correlation between Balchem and TRAVELERS is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and TRAVELERS PPTY CAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAVELERS PPTY CAS 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 TRAVELERS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAVELERS PPTY CAS has no effect on the direction of Balchem i.e., Balchem and TRAVELERS go up and down completely randomly.

Pair Corralation between Balchem and TRAVELERS

Given the investment horizon of 90 days Balchem is expected to under-perform the TRAVELERS. In addition to that, Balchem is 2.15 times more volatile than TRAVELERS PPTY CAS. It trades about -0.03 of its total potential returns per unit of risk. TRAVELERS PPTY CAS is currently generating about -0.04 per unit of volatility. If you would invest  10,918  in TRAVELERS PPTY CAS on December 24, 2024 and sell it today you would lose (149.00) from holding TRAVELERS PPTY CAS or give up 1.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.16%
Values	Daily Returns

Balchem  vs.  TRAVELERS PPTY CAS

Balchem

Risk-Adjusted Performance

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.

TRAVELERS PPTY CAS

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRAVELERS PPTY CAS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, TRAVELERS is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Balchem and TRAVELERS

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

The idea behind Balchem and TRAVELERS PPTY CAS 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.