Correlation Between Balchem and Amazon

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

Diversification Opportunities for Balchem and Amazon

-0.6
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Balchem and Amazon is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Balchem i.e., Balchem and Amazon go up and down completely randomly.

Pair Corralation between Balchem and Amazon

Given the investment horizon of 90 days Balchem is expected to generate 1.1 times less return on investment than Amazon. But when comparing it to its historical volatility, Balchem is 1.83 times less risky than Amazon. It trades about 0.15 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  8,930  in Amazon Inc on September 4, 2022 and sell it today you would earn a total of  483.00  from holding Amazon Inc or generate 5.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Balchem  vs.  Amazon Inc

 Performance (%) 
       Timeline  
Balchem 
Balchem Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Balchem are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Balchem may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Balchem Price Channel

Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2023. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

Balchem and Amazon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Balchem and Amazon

The main advantage of trading using opposite Balchem and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balchem position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.
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The idea behind Balchem and Amazon Inc 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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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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