Correlation Between 5E Advanced and RPM International

Can any of the company-specific risk be diversified away by investing in both 5E Advanced 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 5E Advanced and RPM International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between 5E Advanced Materials and RPM International, you can compare the effects of market volatilities on 5E Advanced 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 5E Advanced with a short position of RPM International. Check out your portfolio center. Please also check ongoing floating volatility patterns of 5E Advanced and RPM International.

Diversification Opportunities for 5E Advanced and RPM International

0.4

Correlation Coefficient

5E Advanced  RPM International

Very weak diversification

The 3 months correlation between FEAM and RPM is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding 5E Advanced Materials and RPM International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RPM International and 5E Advanced 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 5E Advanced Materials 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 5E Advanced i.e., 5E Advanced and RPM International go up and down completely randomly.

Pair Corralation between 5E Advanced and RPM International

Given the investment horizon of 90 days 5E Advanced Materials is expected to under-perform the RPM International. In addition to that, 5E Advanced is 9.12 times more volatile than RPM International. It trades about -0.07 of its total potential returns per unit of risk. RPM International is currently generating about -0.09 per unit of volatility. If you would invest  12,491  in RPM International on December 26, 2024 and sell it today you would lose (914.00) from holding RPM International or give up 7.32% of portfolio value over 90 days.

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

5E Advanced Materials  vs.  RPM International

5E Advanced Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days 5E Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

RPM International

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with 5E Advanced and RPM International

The main advantage of trading using opposite 5E Advanced and RPM International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 5E Advanced 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 5E Advanced Materials 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.

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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.