Correlation Between Merck and RPM International

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

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

Diversification Opportunities for Merck and RPM International

-0.81

Correlation Coefficient

Merck  RPM International

Pay attention - limited upside

The 3 months correlation between Merck and RPM is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Merck Company and RPM International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RPM International and Merck 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 Merck Company 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 Merck i.e., Merck and RPM International go up and down completely randomly.

Pair Corralation between Merck and RPM International

Considering the 90-day investment horizon Merck Company is expected to under-perform the RPM International. In addition to that, Merck is 1.23 times more volatile than RPM International. It trades about -0.15 of its total potential returns per unit of risk. RPM International is currently generating about 0.0 per unit of volatility. If you would invest  13,303  in RPM International on September 13, 2024 and sell it today you would lose (24.50) from holding RPM International or give up 0.18% of portfolio value over 90 days.

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

Merck Company  vs.  RPM International

Merck Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Merck Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite abnormal performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

RPM International

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RPM International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, RPM International may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Merck and RPM International

The main advantage of trading using opposite Merck and RPM International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck 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 Merck Company 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.