Correlation Between RPM International and International Flavors

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

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

Diversification Opportunities for RPM International and International Flavors

-0.68

Correlation Coefficient

RPM International  International Flavors

Excellent diversification

The 3 months correlation between RPM and International is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding RPM International and International Flavors Fragranc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Flavors 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 International Flavors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Flavors has no effect on the direction of RPM International i.e., RPM International and International Flavors go up and down completely randomly.

Pair Corralation between RPM International and International Flavors

Considering the 90-day investment horizon RPM International is expected to generate 0.76 times more return on investment than International Flavors. However, RPM International is 1.32 times less risky than International Flavors. It trades about 0.05 of its potential returns per unit of risk. International Flavors Fragrances is currently generating about 0.0 per unit of risk. If you would invest  9,809  in RPM International on September 4, 2024 and sell it today you would earn a total of  4,063  from holding RPM International or generate 41.42% 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.  International Flavors Fragranc

RPM International

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RPM International are ranked lower than 18 (%) 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.

International Flavors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Flavors Fragrances has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with RPM International and International Flavors

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

The idea behind RPM International and International Flavors Fragrances 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.