Correlation Between Energisa and Procter Gamble

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

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

Diversification Opportunities for Energisa and Procter Gamble

0.03

Correlation Coefficient

Energisa  Procter Gamble

Significant diversification

The 3 months correlation between Energisa and Procter is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Energisa SA and The Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble and Energisa 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 Energisa SA 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 Energisa i.e., Energisa and Procter Gamble go up and down completely randomly.

Pair Corralation between Energisa and Procter Gamble

Assuming the 90 days trading horizon Energisa SA is expected to generate 1.08 times more return on investment than Procter Gamble. However, Energisa is 1.08 times more volatile than The Procter Gamble. It trades about 0.01 of its potential returns per unit of risk. The Procter Gamble is currently generating about -0.07 per unit of risk. If you would invest  4,059  in Energisa SA on November 28, 2024 and sell it today you would lose (8.00) from holding Energisa SA or give up 0.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Energisa SA  vs.  The Procter Gamble

Energisa SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energisa SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Energisa is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Procter Gamble

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Procter Gamble has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Energisa and Procter Gamble

The main advantage of trading using opposite Energisa and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energisa 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 Energisa SA and The 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.