Correlation Between RPM International and Polished

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

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

Diversification Opportunities for RPM International and Polished

-0.49

Correlation Coefficient

RPM International  Polished

Very good diversification

The 3 months correlation between RPM and Polished is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding RPM International and Polished in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polished 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 Polished. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polished has no effect on the direction of RPM International i.e., RPM International and Polished go up and down completely randomly.

Pair Corralation between RPM International and Polished

Considering the 90-day investment horizon RPM International is expected to generate 0.06 times more return on investment than Polished. However, RPM International is 17.72 times less risky than Polished. It trades about -0.22 of its potential returns per unit of risk. Polished is currently generating about -0.18 per unit of risk. If you would invest  11,801  in RPM International on February 3, 2024 and sell it today you would lose (879.00) from holding RPM International or give up 7.45% of portfolio value over 90 days.

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

RPM International  vs.  Polished

RPM International

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in RPM International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, RPM International is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Polished

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Polished are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Polished disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RPM International and Polished

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

The idea behind RPM International and Polished 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.