Correlation Between RPM International and Starco Brands

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

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

Diversification Opportunities for RPM International and Starco Brands

-0.76

Correlation Coefficient

RPM International  Starco Brands

Pay attention - limited upside

The 3 months correlation between RPM and Starco is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding RPM International and Starco Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starco Brands 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 Starco Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starco Brands has no effect on the direction of RPM International i.e., RPM International and Starco Brands go up and down completely randomly.

Pair Corralation between RPM International and Starco Brands

Considering the 90-day investment horizon RPM International is expected to generate 1.26 times less return on investment than Starco Brands. But when comparing it to its historical volatility, RPM International is 4.95 times less risky than Starco Brands. It trades about 0.05 of its potential returns per unit of risk. Starco Brands is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Starco Brands on September 4, 2024 and sell it today you would lose (10.19) from holding Starco Brands or give up 63.69% of portfolio value over 90 days.

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

RPM International  vs.  Starco Brands

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.

Starco Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Starco Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with RPM International and Starco Brands

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

The idea behind RPM International and Starco Brands 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.