Correlation Between Procter Gamble and ATT

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

By analyzing existing cross correlation between Procter Gamble DRC and ATT Inc, you can compare the effects of market volatilities on Procter Gamble and ATT 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 ATT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and ATT.

Diversification Opportunities for Procter Gamble and ATT

0.49

Correlation Coefficient

Procter Gamble  ATT

Very weak diversification

The 3 months correlation between Procter and ATT is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble DRC and ATT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT Inc 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 DRC are associated (or correlated) with ATT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT Inc has no effect on the direction of Procter Gamble i.e., Procter Gamble and ATT go up and down completely randomly.

Pair Corralation between Procter Gamble and ATT

Assuming the 90 days horizon Procter Gamble is expected to generate 1.7 times less return on investment than ATT. But when comparing it to its historical volatility, Procter Gamble DRC is 1.28 times less risky than ATT. It trades about 0.06 of its potential returns per unit of risk. ATT Inc is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  30,460  in ATT Inc on December 2, 2024 and sell it today you would earn a total of  25,540  from holding ATT Inc or generate 83.85% return on investment over 90 days.

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

Procter Gamble DRC  vs.  ATT Inc

Procter Gamble DRC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Procter Gamble DRC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ATT Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, ATT showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Procter Gamble and ATT

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

The idea behind Procter Gamble DRC and ATT Inc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.