Correlation Between RPM International and Merck

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

Diversification Opportunities for RPM International and Merck

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  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between RPM and Merck is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding RPM International and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company and RPM International 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 RPM International are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of RPM International i.e., RPM International and Merck go up and down completely randomly.

Pair Corralation between RPM International and Merck

Considering the 90-day investment horizon RPM International is expected to under-perform the Merck. In addition to that, RPM International is 1.11 times more volatile than Merck Company. It trades about -0.03 of its total potential returns per unit of risk. Merck Company is currently generating about 0.02 per unit of volatility. If you would invest  13,032  in Merck Company on March 23, 2024 and sell it today you would earn a total of  40.00  from holding Merck Company or generate 0.31% return on investment over 90 days.
Time Period3 Months [change]
DirectionFlat 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

RPM International  vs.  Merck Company

 Performance 
       Timeline  
RPM International 

Risk-Adjusted Performance

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Weak
 
Strong
Very Weak
Over the last 90 days RPM International has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, RPM International is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
Merck Company 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Merck Company are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Merck is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

RPM International and Merck Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with RPM International and Merck

The main advantage of trading using opposite RPM International and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RPM International position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.
The idea behind RPM International and Merck Company 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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