Correlation Between Quaker Chemical and Balchem

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

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

Diversification Opportunities for Quaker Chemical and Balchem

0.61

Correlation Coefficient

Quaker Chemical  Balchem

Poor diversification

The 3 months correlation between Quaker and Balchem is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Quaker Chemical and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem and Quaker 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 Quaker 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 Quaker Chemical i.e., Quaker Chemical and Balchem go up and down completely randomly.

Pair Corralation between Quaker Chemical and Balchem

Considering the 90-day investment horizon Quaker Chemical is expected to generate 1.52 times less return on investment than Balchem. In addition to that, Quaker Chemical is 2.17 times more volatile than Balchem. It trades about 0.07 of its total potential returns per unit of risk. Balchem is currently generating about 0.23 per unit of volatility. If you would invest  16,733  in Balchem on September 1, 2024 and sell it today you would earn a total of  1,319  from holding Balchem or generate 7.88% return on investment over 90 days.

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

Quaker Chemical  vs.  Balchem

Quaker Chemical

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Quaker Chemical has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Quaker Chemical is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Balchem

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Balchem are ranked lower than 4 (%) 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 Quaker Chemical and Balchem

The main advantage of trading using opposite Quaker Chemical and Balchem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Quaker 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 Quaker 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.