Correlation Between Procter Gamble and China Overseas

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

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

Diversification Opportunities for Procter Gamble and China Overseas

0.37

Correlation Coefficient

Procter Gamble  China Overseas

Weak diversification

The 3 months correlation between Procter and China is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and China Overseas Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Overseas Land 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 are associated (or correlated) with China Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Overseas Land has no effect on the direction of Procter Gamble i.e., Procter Gamble and China Overseas go up and down completely randomly.

Pair Corralation between Procter Gamble and China Overseas

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 12.35 times less return on investment than China Overseas. But when comparing it to its historical volatility, Procter Gamble is 1.69 times less risky than China Overseas. It trades about 0.03 of its potential returns per unit of risk. China Overseas Land is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  151.00  in China Overseas Land on December 28, 2024 and sell it today you would earn a total of  37.00  from holding China Overseas Land or generate 24.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

Procter Gamble  vs.  China Overseas Land

Procter Gamble

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

China Overseas Land

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Overseas Land are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, China Overseas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Procter Gamble and China Overseas

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

The idea behind Procter Gamble and China Overseas Land 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.