Correlation Between RPM International and Orion Engineered

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

By analyzing existing cross correlation between RPM International and Orion Engineered Carbons, you can compare the effects of market volatilities on RPM International and Orion Engineered 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 Orion Engineered. Check out your portfolio center. Please also check ongoing floating volatility patterns of RPM International and Orion Engineered.

Diversification Opportunities for RPM International and Orion Engineered

-0.08

Correlation Coefficient

RPM International  Orion Engineered

Good diversification

The 3 months correlation between RPM and Orion is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding RPM International and Orion Engineered Carbons in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orion Engineered Carbons 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 Orion Engineered. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orion Engineered Carbons has no effect on the direction of RPM International i.e., RPM International and Orion Engineered go up and down completely randomly.

Pair Corralation between RPM International and Orion Engineered

Considering the 90-day investment horizon RPM International is expected to under-perform the Orion Engineered. But the stock apears to be less risky and, when comparing its historical volatility, RPM International is 1.01 times less risky than Orion Engineered. The stock trades about -0.2 of its potential returns per unit of risk. The Orion Engineered Carbons is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,237  in Orion Engineered Carbons on January 18, 2024 and sell it today you would earn a total of  129.00  from holding Orion Engineered Carbons or generate 5.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

RPM International  vs.  Orion Engineered Carbons

RPM International

Risk-Adjusted Performance

0 of 100

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.

Orion Engineered Carbons

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Orion Engineered Carbons are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Orion Engineered is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with RPM International and Orion Engineered

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

The idea behind RPM International and Orion Engineered Carbons 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..