Correlation Between Balchem and United States

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

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

Diversification Opportunities for Balchem and United States

0.63

Correlation Coefficient

Balchem  United States

Poor diversification

The 3 months correlation between Balchem and United is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of Balchem i.e., Balchem and United States go up and down completely randomly.

Pair Corralation between Balchem and United States

Given the investment horizon of 90 days Balchem is expected to generate 0.47 times more return on investment than United States. However, Balchem is 2.15 times less risky than United States. It trades about 0.02 of its potential returns per unit of risk. United States Steel is currently generating about -0.01 per unit of risk. If you would invest  15,366  in Balchem on October 9, 2024 and sell it today you would earn a total of  350.00  from holding Balchem or generate 2.28% return on investment over 90 days.

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

Balchem  vs.  United States Steel

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 unsteady 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.

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, United States is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Balchem and United States

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

The idea behind Balchem and United States Steel 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.