Correlation Between CECO Environmental and Balchem

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

By analyzing existing cross correlation between CECO Environmental Corp and Balchem, you can compare the effects of market volatilities on CECO Environmental and Balchem 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 CECO Environmental with a short position of Balchem. Check out your portfolio center. Please also check ongoing floating volatility patterns of CECO Environmental and Balchem.

Diversification Opportunities for CECO Environmental and Balchem

0.1

Correlation Coefficient

CECO Environmental  Balchem

Average diversification

The 3 months correlation between CECO and Balchem is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding CECO Environmental Corp and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem and CECO Environmental 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 CECO Environmental Corp are associated (or correlated) with Balchem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balchem has no effect on the direction of CECO Environmental i.e., CECO Environmental and Balchem go up and down completely randomly.

Pair Corralation between CECO Environmental and Balchem

Given the investment horizon of 90 days CECO Environmental Corp is expected to generate 2.31 times more return on investment than Balchem. However, CECO Environmental is 2.31 times more volatile than Balchem. It trades about 0.02 of its potential returns per unit of risk. Balchem is currently generating about -0.44 per unit of risk. If you would invest  3,277  in CECO Environmental Corp on October 9, 2024 and sell it today you would earn a total of  5.00  from holding CECO Environmental Corp or generate 0.15% return on investment over 90 days.

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

CECO Environmental Corp  vs.  Balchem

CECO Environmental Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CECO Environmental Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, CECO Environmental displayed solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with CECO Environmental and Balchem

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

The idea behind CECO Environmental Corp and Balchem 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.