Correlation Between Eastman Chemical and Balchem

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

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

Diversification Opportunities for Eastman Chemical and Balchem

0.3

Correlation Coefficient

Eastman Chemical  Balchem

Weak diversification

The 3 months correlation between Eastman and Balchem is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Eastman Chemical and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem and Eastman Chemical 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 Eastman Chemical 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 Eastman Chemical i.e., Eastman Chemical and Balchem go up and down completely randomly.

Pair Corralation between Eastman Chemical and Balchem

Considering the 90-day investment horizon Eastman Chemical is expected to under-perform the Balchem. In addition to that, Eastman Chemical is 1.33 times more volatile than Balchem. It trades about 0.0 of its total potential returns per unit of risk. Balchem is currently generating about 0.02 per unit of volatility. If you would invest  16,397  in Balchem on December 29, 2024 and sell it today you would earn a total of  214.00  from holding Balchem or generate 1.31% return on investment over 90 days.

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

Eastman Chemical  vs.  Balchem

Eastman Chemical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastman Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Eastman Chemical is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Balchem

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Balchem are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Eastman Chemical and Balchem

The main advantage of trading using opposite Eastman Chemical and Balchem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastman Chemical 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 Eastman Chemical 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.