Correlation Between Westlake Chemical and RPM International

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

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

Diversification Opportunities for Westlake Chemical and RPM International

0.17

Correlation Coefficient

Westlake Chemical  RPM International

Average diversification

The 3 months correlation between Westlake and RPM is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Westlake Chemical and RPM International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RPM International and Westlake Chemical 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 Westlake Chemical are associated (or correlated) with RPM International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RPM International has no effect on the direction of Westlake Chemical i.e., Westlake Chemical and RPM International go up and down completely randomly.

Pair Corralation between Westlake Chemical and RPM International

Considering the 90-day investment horizon Westlake Chemical is expected to generate 0.93 times more return on investment than RPM International. However, Westlake Chemical is 1.08 times less risky than RPM International. It trades about 0.0 of its potential returns per unit of risk. RPM International is currently generating about -0.23 per unit of risk. If you would invest  15,015  in Westlake Chemical on January 26, 2024 and sell it today you would lose (25.00) from holding Westlake Chemical or give up 0.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.3%
Values	Daily Returns

Westlake Chemical  vs.  RPM International

Westlake Chemical

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Westlake Chemical are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain essential indicators, Westlake Chemical may actually be approaching a critical reversion point that can send shares even higher in May 2024.

RPM International

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RPM International are ranked lower than 1 (%) 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 latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Westlake Chemical and RPM International

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

The idea behind Westlake Chemical and RPM International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.