Correlation Between Balchem and Valhi

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

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

Diversification Opportunities for Balchem and Valhi

0.31

Correlation Coefficient

Balchem  Valhi

Weak diversification

The 3 months correlation between Balchem and Valhi is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of Balchem i.e., Balchem and Valhi go up and down completely randomly.

Pair Corralation between Balchem and Valhi

Given the investment horizon of 90 days Balchem is expected to generate 0.3 times more return on investment than Valhi. However, Balchem is 3.32 times less risky than Valhi. It trades about -0.04 of its potential returns per unit of risk. Valhi Inc is currently generating about -0.12 per unit of risk. If you would invest  16,691  in Balchem on October 21, 2024 and sell it today you would lose (676.00) from holding Balchem or give up 4.05% of portfolio value over 90 days.

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

Balchem  vs.  Valhi Inc

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.

Valhi Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valhi Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Balchem and Valhi

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

The idea behind Balchem and Valhi Inc 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.