Correlation Between Axalta Coating and Balchem

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

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

Diversification Opportunities for Axalta Coating and Balchem

0.8

Correlation Coefficient

Axalta Coating  Balchem

Very poor diversification

The 3 months correlation between Axalta and Balchem is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Axalta Coating Systems and Balchem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balchem and Axalta Coating 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 Axalta Coating Systems 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 Axalta Coating i.e., Axalta Coating and Balchem go up and down completely randomly.

Pair Corralation between Axalta Coating and Balchem

Given the investment horizon of 90 days Axalta Coating Systems is expected to generate 1.25 times more return on investment than Balchem. However, Axalta Coating is 1.25 times more volatile than Balchem. It trades about 0.12 of its potential returns per unit of risk. Balchem is currently generating about 0.06 per unit of risk. If you would invest  3,574  in Axalta Coating Systems on August 31, 2024 and sell it today you would earn a total of  479.00  from holding Axalta Coating Systems or generate 13.4% return on investment over 90 days.

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

Axalta Coating Systems  vs.  Balchem

Axalta Coating Systems

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Axalta Coating Systems are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Axalta Coating sustained solid returns over the last few months and may actually be approaching a breakup point.

Balchem

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Balchem are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Balchem is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Axalta Coating and Balchem

The main advantage of trading using opposite Axalta Coating and Balchem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Axalta Coating 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 Axalta Coating Systems 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.