Correlation Between Analog Devices and Procter Gamble

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

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

Diversification Opportunities for Analog Devices and Procter Gamble

-0.12

Correlation Coefficient

Analog Devices  Procter Gamble

Good diversification

The 3 months correlation between Analog and Procter is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble and Analog Devices 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 Analog Devices 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 Analog Devices i.e., Analog Devices and Procter Gamble go up and down completely randomly.

Pair Corralation between Analog Devices and Procter Gamble

Considering the 90-day investment horizon Analog Devices is expected to generate 1.62 times more return on investment than Procter Gamble. However, Analog Devices is 1.62 times more volatile than Procter Gamble. It trades about 0.09 of its potential returns per unit of risk. Procter Gamble is currently generating about -0.37 per unit of risk. If you would invest  21,561  in Analog Devices on October 11, 2024 and sell it today you would earn a total of  483.00  from holding Analog Devices or generate 2.24% return on investment over 90 days.

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

Analog Devices  vs.  Procter Gamble

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Procter Gamble

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Procter Gamble has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Analog Devices and Procter Gamble

The main advantage of trading using opposite Analog Devices and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Analog Devices 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 Analog Devices 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.