Correlation Between American Airlines and Balchem

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Can any of the company-specific risk be diversified away by investing in both American Airlines 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 American Airlines and Balchem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Airlines Group and Balchem, you can compare the effects of market volatilities on American Airlines 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 American Airlines with a short position of Balchem. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Balchem.

Diversification Opportunities for American Airlines and Balchem

-0.67
  Correlation Coefficient

Excellent diversification

The 3 months correlation between American and Balchem is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem and American Airlines 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 American Airlines Group 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 American Airlines i.e., American Airlines and Balchem go up and down completely randomly.

Pair Corralation between American Airlines and Balchem

Considering the 90-day investment horizon American Airlines is expected to generate 1.34 times less return on investment than Balchem. In addition to that, American Airlines is 2.67 times more volatile than Balchem. It trades about 0.01 of its total potential returns per unit of risk. Balchem is currently generating about 0.03 per unit of volatility. If you would invest  15,908  in Balchem on November 4, 2024 and sell it today you would earn a total of  88.00  from holding Balchem or generate 0.55% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

American Airlines Group  vs.  Balchem

 Performance 
       Timeline  
American Airlines 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in American Airlines Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, American Airlines disclosed solid returns over the last few months and may actually be approaching a breakup point.
Balchem 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

American Airlines and Balchem Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Airlines and Balchem

The main advantage of trading using opposite American Airlines and Balchem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines 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 American Airlines Group 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.
Check out your portfolio center.
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 Anywhere module to track or share privately all of your investments from the convenience of any device.

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