Correlation Between Procter Gamble and T.J. Maxx

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

By analyzing existing cross correlation between Procter Gamble and The TJX Companies, you can compare the effects of market volatilities on Procter Gamble and T.J. Maxx 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 T.J. Maxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and T.J. Maxx.

Diversification Opportunities for Procter Gamble and T.J. Maxx

0.68

Correlation Coefficient

Procter Gamble  T.J. Maxx

Poor diversification

The 3 months correlation between Procter and T.J. is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and The TJX Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TJX Companies 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 T.J. Maxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TJX Companies has no effect on the direction of Procter Gamble i.e., Procter Gamble and T.J. Maxx go up and down completely randomly.

Pair Corralation between Procter Gamble and T.J. Maxx

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 0.76 times more return on investment than T.J. Maxx. However, Procter Gamble is 1.31 times less risky than T.J. Maxx. It trades about -0.12 of its potential returns per unit of risk. The TJX Companies is currently generating about -0.22 per unit of risk. If you would invest  16,079  in Procter Gamble on January 19, 2024 and sell it today you would lose (350.00) from holding Procter Gamble or give up 2.18% of portfolio value over 90 days.

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

Procter Gamble  vs.  The TJX Companies

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 weak technical and fundamental indicators, Procter Gamble may actually be approaching a critical reversion point that can send shares even higher in May 2024.

TJX Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The TJX Companies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, T.J. Maxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Procter Gamble and T.J. Maxx

The main advantage of trading using opposite Procter Gamble and T.J. Maxx positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble position performs unexpectedly, T.J. Maxx 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 T.J. Maxx will offset losses from the drop in T.J. Maxx's long position.

The idea behind Procter Gamble and The TJX Companies 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.