Correlation Between RPM International and Cabot

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

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

Diversification Opportunities for RPM International and Cabot

0.89

Correlation Coefficient

RPM International  Cabot

Very poor diversification

The 3 months correlation between RPM and Cabot is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding RPM International and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot 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 Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of RPM International i.e., RPM International and Cabot go up and down completely randomly.

Pair Corralation between RPM International and Cabot

Considering the 90-day investment horizon RPM International is expected to generate 0.55 times more return on investment than Cabot. However, RPM International is 1.82 times less risky than Cabot. It trades about 0.09 of its potential returns per unit of risk. Cabot is currently generating about -0.01 per unit of risk. If you would invest  13,303  in RPM International on August 14, 2024 and sell it today you would earn a total of  286.00  from holding RPM International or generate 2.15% return on investment over 90 days.

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

RPM International  vs.  Cabot

RPM International

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RPM International are ranked lower than 15 (%) 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.

Cabot

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cabot are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Cabot unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RPM International and Cabot

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

The idea behind RPM International and Cabot 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.