Correlation Between RPM International and Ecolab

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

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

Diversification Opportunities for RPM International and Ecolab

0.75

Correlation Coefficient

RPM International  Ecolab

Poor diversification

The 3 months correlation between RPM and Ecolab is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding RPM International and Ecolab Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ecolab Inc 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 Ecolab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ecolab Inc has no effect on the direction of RPM International i.e., RPM International and Ecolab go up and down completely randomly.

Pair Corralation between RPM International and Ecolab

Considering the 90-day investment horizon RPM International is expected to generate 0.75 times more return on investment than Ecolab. However, RPM International is 1.33 times less risky than Ecolab. It trades about -0.05 of its potential returns per unit of risk. Ecolab Inc is currently generating about -0.08 per unit of risk. If you would invest  12,868  in RPM International on August 7, 2024 and sell it today you would lose (114.00) from holding RPM International or give up 0.89% of portfolio value over 90 days.

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

RPM International  vs.  Ecolab Inc

RPM International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RPM International are ranked lower than 12 (%) 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.

Ecolab Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ecolab Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, Ecolab is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with RPM International and Ecolab

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

The idea behind RPM International and Ecolab Inc 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.