Correlation Between Hi Tech and Procter Gamble

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

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

Diversification Opportunities for Hi Tech and Procter Gamble

0.79

Correlation Coefficient

Hi Tech  Procter Gamble

Poor diversification

The 3 months correlation between HITECHGEAR and Procter is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding The Hi Tech Gears and Procter Gamble Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble Health and Hi Tech 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 The Hi Tech Gears 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 Health has no effect on the direction of Hi Tech i.e., Hi Tech and Procter Gamble go up and down completely randomly.

Pair Corralation between Hi Tech and Procter Gamble

Assuming the 90 days trading horizon Hi Tech is expected to generate 2.55 times less return on investment than Procter Gamble. In addition to that, Hi Tech is 1.89 times more volatile than Procter Gamble Health. It trades about 0.01 of its total potential returns per unit of risk. Procter Gamble Health is currently generating about 0.04 per unit of volatility. If you would invest  472,205  in Procter Gamble Health on October 9, 2024 and sell it today you would earn a total of  39,700  from holding Procter Gamble Health or generate 8.41% return on investment over 90 days.

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

The Hi Tech Gears  vs.  Procter Gamble Health

Hi Tech

Risk-Adjusted Performance

0 of 100

Very Weak

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

Procter Gamble Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Procter Gamble Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Procter Gamble is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hi Tech and Procter Gamble

The main advantage of trading using opposite Hi Tech and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hi Tech 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 The Hi Tech Gears and Procter Gamble Health 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.