Correlation Between RPM International and Brenntag

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

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

Diversification Opportunities for RPM International and Brenntag

-0.74

Correlation Coefficient

RPM International  Brenntag

Pay attention - limited upside

The 3 months correlation between RPM and Brenntag is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding RPM International and Brenntag AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brenntag AG ADR 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 Brenntag. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brenntag AG ADR has no effect on the direction of RPM International i.e., RPM International and Brenntag go up and down completely randomly.

Pair Corralation between RPM International and Brenntag

Considering the 90-day investment horizon RPM International is expected to generate 0.6 times more return on investment than Brenntag. However, RPM International is 1.67 times less risky than Brenntag. It trades about 0.24 of its potential returns per unit of risk. Brenntag AG ADR is currently generating about -0.08 per unit of risk. If you would invest  11,361  in RPM International on September 5, 2024 and sell it today you would earn a total of  2,511  from holding RPM International or generate 22.1% return on investment over 90 days.

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

RPM International  vs.  Brenntag AG ADR

RPM International

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RPM International are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, RPM International displayed solid returns over the last few months and may actually be approaching a breakup point.

Brenntag AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brenntag AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with RPM International and Brenntag

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

The idea behind RPM International and Brenntag AG ADR 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..