Correlation Between Amazon and Procter Gamble

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

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

Diversification Opportunities for Amazon and Procter Gamble

0.35

Correlation Coefficient

Amazon  Procter Gamble

Weak diversification

The 3 months correlation between Amazon and Procter is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble and Amazon 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 Amazon Inc are associated (or correlated) with Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of Amazon i.e., Amazon and Procter Gamble go up and down completely randomly.

Pair Corralation between Amazon and Procter Gamble

Given the investment horizon of 90 days Amazon Inc is expected to generate 2.18 times more return on investment than Procter Gamble. However, Amazon is 2.18 times more volatile than Procter Gamble. It trades about 0.05 of its potential returns per unit of risk. Procter Gamble is currently generating about 0.02 per unit of risk. If you would invest  11,477  in Amazon Inc on January 26, 2024 and sell it today you would earn a total of  6,182  from holding Amazon Inc or generate 53.86% return on investment over 90 days.

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

Amazon Inc  vs.  Procter Gamble

Amazon Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Amazon may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Procter Gamble

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Amazon and Procter Gamble

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

The idea behind Amazon Inc and Procter Gamble 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.