Correlation Between NYSE Composite and Procter Gamble

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Can any of the company-specific risk be diversified away by investing in both NYSE Composite 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 NYSE Composite and Procter Gamble into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NYSE Composite and Procter Gamble, you can compare the effects of market volatilities on NYSE Composite 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 NYSE Composite with a short position of Procter Gamble. Check out your portfolio center. Please also check ongoing floating volatility patterns of NYSE Composite and Procter Gamble.

Diversification Opportunities for NYSE Composite and Procter Gamble

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between NYSE and Procter is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble and NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and Procter Gamble go up and down completely randomly.
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Pair Corralation between NYSE Composite and Procter Gamble

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.02 times more return on investment than Procter Gamble. However, NYSE Composite is 1.02 times more volatile than Procter Gamble. It trades about 0.34 of its potential returns per unit of risk. Procter Gamble is currently generating about 0.2 per unit of risk. If you would invest  1,759,832  in NYSE Composite on December 29, 2023 and sell it today you would earn a total of  65,692  from holding NYSE Composite or generate 3.73% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

NYSE Composite  vs.  Procter Gamble

 Performance 
       Timeline  

NYSE Composite and Procter Gamble Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with NYSE Composite and Procter Gamble

The main advantage of trading using opposite NYSE Composite and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NYSE Composite 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 NYSE Composite 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.

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