Correlation Between Encore Wire and Balchem

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

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

Diversification Opportunities for Encore Wire and Balchem

-0.27

Correlation Coefficient

Encore Wire  Balchem

Very good diversification

The 3 months correlation between Encore and Balchem is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Encore Wire and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem and Encore Wire 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 Encore Wire 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 Encore Wire i.e., Encore Wire and Balchem go up and down completely randomly.

Pair Corralation between Encore Wire and Balchem

Given the investment horizon of 90 days Encore Wire is expected to generate 2.33 times more return on investment than Balchem. However, Encore Wire is 2.33 times more volatile than Balchem. It trades about 0.12 of its potential returns per unit of risk. Balchem is currently generating about -0.34 per unit of risk. If you would invest  26,738  in Encore Wire on January 29, 2024 and sell it today you would earn a total of  1,751  from holding Encore Wire or generate 6.55% return on investment over 90 days.

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

Encore Wire  vs.  Balchem

Encore Wire

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Encore Wire are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Encore Wire exhibited 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 rather sound basic indicators, Balchem is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Encore Wire and Balchem

The main advantage of trading using opposite Encore Wire and Balchem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Encore Wire 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 Encore Wire 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.