Correlation Between Procter Gamble and Walmart

Can any of the company-specific risk be diversified away by investing in both Procter Gamble and Walmart 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 Walmart 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 Walmart, you can compare the effects of market volatilities on Procter Gamble and Walmart 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 Walmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and Walmart.

Diversification Opportunities for Procter Gamble and Walmart

0.79

Correlation Coefficient

Procter Gamble  Walmart

Poor diversification

The 3 months correlation between Procter and Walmart is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble DRC and Walmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Walmart 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 Walmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Walmart has no effect on the direction of Procter Gamble i.e., Procter Gamble and Walmart go up and down completely randomly.

Pair Corralation between Procter Gamble and Walmart

Assuming the 90 days horizon Procter Gamble is expected to generate 24.75 times less return on investment than Walmart. In addition to that, Procter Gamble is 1.02 times more volatile than Walmart. It trades about 0.01 of its total potential returns per unit of risk. Walmart is currently generating about 0.21 per unit of volatility. If you would invest  165,633  in Walmart on September 23, 2024 and sell it today you would earn a total of  19,367  from holding Walmart or generate 11.69% return on investment over 90 days.

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

Procter Gamble DRC  vs.  Walmart

Procter Gamble DRC

Risk-Adjusted Performance

0 of 100

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.

Walmart

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Walmart showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Procter Gamble and Walmart

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

The idea behind Procter Gamble DRC and Walmart 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .