Correlation Between GM and PROCTER

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

By analyzing existing cross correlation between General Motors and PROCTER GAMBLE CO, you can compare the effects of market volatilities on GM and PROCTER 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 GM with a short position of PROCTER. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and PROCTER.

Diversification Opportunities for GM and PROCTER

-0.28

Correlation Coefficient

GM  PROCTER

Very good diversification

The 3 months correlation between GM and PROCTER is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and PROCTER GAMBLE CO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PROCTER GAMBLE CO and GM 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 General Motors are associated (or correlated) with PROCTER. 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 CO has no effect on the direction of GM i.e., GM and PROCTER go up and down completely randomly.

Pair Corralation between GM and PROCTER

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the PROCTER. In addition to that, GM is 5.0 times more volatile than PROCTER GAMBLE CO. It trades about -0.07 of its total potential returns per unit of risk. PROCTER GAMBLE CO is currently generating about -0.09 per unit of volatility. If you would invest  9,674  in PROCTER GAMBLE CO on December 29, 2024 and sell it today you would lose (285.00) from holding PROCTER GAMBLE CO or give up 2.95% of portfolio value over 90 days.

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

General Motors  vs.  PROCTER GAMBLE CO

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

PROCTER GAMBLE CO

Risk-Adjusted Performance

Very Weak

Over the last 90 days PROCTER GAMBLE CO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PROCTER is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and PROCTER

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

The idea behind General Motors and PROCTER GAMBLE CO 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.