Correlation Between H B and Balchem

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

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

Diversification Opportunities for H B and Balchem

0.27

Correlation Coefficient

H B  Balchem

Modest diversification

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

Pair Corralation between H B and Balchem

Considering the 90-day investment horizon H B Fuller is expected to under-perform the Balchem. But the stock apears to be less risky and, when comparing its historical volatility, H B Fuller is 1.25 times less risky than Balchem. The stock trades about -0.64 of its potential returns per unit of risk. The Balchem is currently generating about -0.35 of returns per unit of risk over similar time horizon. If you would invest  18,269  in Balchem on September 25, 2024 and sell it today you would lose (1,552) from holding Balchem or give up 8.5% of portfolio value over 90 days.

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

H B Fuller  vs.  Balchem

H B Fuller

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days H B Fuller has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with H B and Balchem

The main advantage of trading using opposite H B and Balchem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if H B 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 H B Fuller 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.