Correlation Between Balchem and REX American
Can any of the company-specific risk be diversified away by investing in both Balchem and REX American 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 Balchem and REX American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balchem and REX American Resources, you can compare the effects of market volatilities on Balchem and REX American 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 Balchem with a short position of REX American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balchem and REX American.
Diversification Opportunities for Balchem and REX American
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Balchem and REX is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and REX American Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REX American Resources and Balchem 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 Balchem are associated (or correlated) with REX American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REX American Resources has no effect on the direction of Balchem i.e., Balchem and REX American go up and down completely randomly.
Pair Corralation between Balchem and REX American
Given the investment horizon of 90 days Balchem is expected to generate 1.51 times less return on investment than REX American. But when comparing it to its historical volatility, Balchem is 1.95 times less risky than REX American. It trades about 0.05 of its potential returns per unit of risk. REX American Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 3,099 in REX American Resources on August 24, 2024 and sell it today you would earn a total of 1,455 from holding REX American Resources or generate 46.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Balchem vs. REX American Resources
Performance |
| Timeline |
| Balchem |
| REX American Resources |
Balchem and REX American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Balchem and REX American
The main advantage of trading using opposite Balchem and REX American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balchem position performs unexpectedly, REX American 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 REX American will offset losses from the drop in REX American's long position.| Balchem vs. Eshallgo Class A | Balchem vs. Amtech Systems | Balchem vs. Gold Fields Ltd | Balchem vs. Aegean Airlines SA |
| REX American vs. Innospec | REX American vs. H B Fuller | REX American vs. Quaker Chemical | REX American vs. Minerals Technologies |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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