Correlation Between Innospec and Balchem

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

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

Diversification Opportunities for Innospec and Balchem

0.65

Correlation Coefficient

Innospec  Balchem

Poor diversification

The 3 months correlation between Innospec and Balchem is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Innospec and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem and Innospec 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 Innospec 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 Innospec i.e., Innospec and Balchem go up and down completely randomly.

Pair Corralation between Innospec and Balchem

Given the investment horizon of 90 days Innospec is expected to under-perform the Balchem. In addition to that, Innospec is 1.21 times more volatile than Balchem. It trades about -0.13 of its total potential returns per unit of risk. Balchem is currently generating about -0.04 per unit of volatility. If you would invest  17,958  in Balchem on November 28, 2024 and sell it today you would lose (689.00) from holding Balchem or give up 3.84% of portfolio value over 90 days.

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

Innospec  vs.  Balchem

Innospec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innospec has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

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.

Pair Trading with Innospec and Balchem

The main advantage of trading using opposite Innospec and Balchem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Innospec 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 Innospec 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..