Correlation Between Procter Gamble and British Amer

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

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

Diversification Opportunities for Procter Gamble and British Amer

0.47

Correlation Coefficient

Procter Gamble  British Amer

Very weak diversification

The 3 months correlation between Procter and British is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco and Procter Gamble 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 Procter Gamble are associated (or correlated) with British Amer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Procter Gamble i.e., Procter Gamble and British Amer go up and down completely randomly.

Pair Corralation between Procter Gamble and British Amer

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 0.83 times more return on investment than British Amer. However, Procter Gamble is 1.21 times less risky than British Amer. It trades about 0.02 of its potential returns per unit of risk. British American Tobacco is currently generating about -0.02 per unit of risk. If you would invest  14,673  in Procter Gamble on January 25, 2024 and sell it today you would earn a total of  1,477  from holding Procter Gamble or generate 10.07% return on investment over 90 days.

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

Procter Gamble  vs.  British American Tobacco

Procter Gamble

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 8 (%) 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.

British American Tobacco

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, British Amer is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Procter Gamble and British Amer

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

The idea behind Procter Gamble and British American Tobacco 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.