Correlation Between Balchem and Alto Ingredients

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

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

Diversification Opportunities for Balchem and Alto Ingredients

0.58

Correlation Coefficient

Balchem  Alto Ingredients

Very weak diversification

The 3 months correlation between Balchem and Alto is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Alto Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alto Ingredients 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 Alto Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alto Ingredients has no effect on the direction of Balchem i.e., Balchem and Alto Ingredients go up and down completely randomly.

Pair Corralation between Balchem and Alto Ingredients

Given the investment horizon of 90 days Balchem is expected to under-perform the Alto Ingredients. But the stock apears to be less risky and, when comparing its historical volatility, Balchem is 3.23 times less risky than Alto Ingredients. The stock trades about -0.24 of its potential returns per unit of risk. The Alto Ingredients is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  191.00  in Alto Ingredients on January 25, 2024 and sell it today you would earn a total of  5.00  from holding Alto Ingredients or generate 2.62% return on investment over 90 days.

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

Balchem  vs.  Alto Ingredients

Balchem

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Balchem are ranked lower than 1 (%) 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.

Alto Ingredients

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alto Ingredients are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Alto Ingredients is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Balchem and Alto Ingredients

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

The idea behind Balchem and Alto Ingredients 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.