Correlation Between Balchem and Service Properties

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

By analyzing existing cross correlation between Balchem and Service Properties Trust, you can compare the effects of market volatilities on Balchem and Service Properties 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 Service Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balchem and Service Properties.

Diversification Opportunities for Balchem and Service Properties

-0.44

Correlation Coefficient

Balchem  Service Properties

Very good diversification

The 3 months correlation between Balchem and Service is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Service Properties Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Service Properties Trust 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 Service Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Service Properties Trust has no effect on the direction of Balchem i.e., Balchem and Service Properties go up and down completely randomly.

Pair Corralation between Balchem and Service Properties

Given the investment horizon of 90 days Balchem is expected to generate 0.35 times more return on investment than Service Properties. However, Balchem is 2.89 times less risky than Service Properties. It trades about 0.06 of its potential returns per unit of risk. Service Properties Trust is currently generating about -0.18 per unit of risk. If you would invest  17,180  in Balchem on September 3, 2024 and sell it today you would earn a total of  872.00  from holding Balchem or generate 5.08% return on investment over 90 days.

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

Balchem  vs.  Service Properties Trust

Balchem

Risk-Adjusted Performance

4 of 100

Insignificant

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

Service Properties Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Service Properties Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Balchem and Service Properties

The main advantage of trading using opposite Balchem and Service Properties positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Balchem position performs unexpectedly, Service Properties 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 Service Properties will offset losses from the drop in Service Properties' long position.

The idea behind Balchem and Service Properties Trust 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.