Can any of the company-specific risk be diversified away by investing in both Balchem and Mitsubishi UFJ 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 Mitsubishi UFJ into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Balchem and Mitsubishi UFJ Financial, you can compare the effects of market volatilities on Balchem and Mitsubishi UFJ 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 Mitsubishi UFJ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Balchem and Mitsubishi UFJ.
Diversification Opportunities for Balchem and Mitsubishi UFJ
The 3 months correlation between Balchem and Mitsubishi is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Balchem and Mitsubishi UFJ Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi UFJ Financial 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 Mitsubishi UFJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi UFJ Financial has no effect on the direction of Balchem i.e., Balchem and Mitsubishi UFJ go up and down completely randomly.
Pair Corralation between Balchem and Mitsubishi UFJ
Given the investment horizon of 90 days Balchem is expected to generate 2.47 times less return on investment than Mitsubishi UFJ. In addition to that, Balchem is 1.03 times more volatile than Mitsubishi UFJ Financial. It trades about 0.06 of its total potential returns per unit of risk. Mitsubishi UFJ Financial is currently generating about 0.16 per unit of volatility. If you would invest 981.00 in Mitsubishi UFJ Financial on March 6, 2024 and sell it today you would earn a total of 79.00 from holding Mitsubishi UFJ Financial or generate 8.05% return on investment over 90 days.
Over the last 90 days Balchem has generated negative risk-adjusted returns adding no value to investors with long positions. 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.
Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Mitsubishi UFJ is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.