Correlation Between Sensient Technologies and RPM International

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

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

Diversification Opportunities for Sensient Technologies and RPM International

0.55

Correlation Coefficient

Sensient Technologies  RPM International

Very weak diversification

The 3 months correlation between Sensient and RPM is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Sensient Technologies and RPM International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RPM International and Sensient Technologies 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 Sensient Technologies are associated (or correlated) with RPM International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RPM International has no effect on the direction of Sensient Technologies i.e., Sensient Technologies and RPM International go up and down completely randomly.

Pair Corralation between Sensient Technologies and RPM International

Considering the 90-day investment horizon Sensient Technologies is expected to generate 4.91 times less return on investment than RPM International. In addition to that, Sensient Technologies is 1.08 times more volatile than RPM International. It trades about 0.04 of its total potential returns per unit of risk. RPM International is currently generating about 0.22 per unit of volatility. If you would invest  11,505  in RPM International on September 2, 2024 and sell it today you would earn a total of  2,373  from holding RPM International or generate 20.63% return on investment over 90 days.

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

Sensient Technologies  vs.  RPM International

Sensient Technologies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sensient Technologies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Sensient Technologies is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

RPM International

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in RPM International are ranked lower than 17 (%) 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.

Pair Trading with Sensient Technologies and RPM International

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

The idea behind Sensient Technologies and RPM International 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.