Correlation Between GM and Procter Gamble

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

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

Diversification Opportunities for GM and Procter Gamble

0.34

Correlation Coefficient

GM  Procter Gamble

Weak diversification

The 3 months correlation between GM and Procter is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble and GM 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 General Motors 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 GM i.e., GM and Procter Gamble go up and down completely randomly.

Pair Corralation between GM and Procter Gamble

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.86 times more return on investment than Procter Gamble. However, GM is 1.86 times more volatile than Procter Gamble. It trades about 0.18 of its potential returns per unit of risk. Procter Gamble is currently generating about 0.14 per unit of risk. If you would invest  3,522  in General Motors on January 21, 2024 and sell it today you would earn a total of  715.00  from holding General Motors or generate 20.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  Procter Gamble

General Motors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Procter Gamble

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical and fundamental indicators, Procter Gamble may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with GM and Procter Gamble

The main advantage of trading using opposite GM and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.