Correlation Between Procter Gamble and PharmChem

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

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

Diversification Opportunities for Procter Gamble and PharmChem

-0.36

Correlation Coefficient

Procter Gamble  PharmChem

Very good diversification

The 3 months correlation between Procter and PharmChem is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and PharmChem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PharmChem 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 PharmChem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PharmChem has no effect on the direction of Procter Gamble i.e., Procter Gamble and PharmChem go up and down completely randomly.

Pair Corralation between Procter Gamble and PharmChem

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 3.04 times less return on investment than PharmChem. But when comparing it to its historical volatility, Procter Gamble is 6.26 times less risky than PharmChem. It trades about 0.06 of its potential returns per unit of risk. PharmChem is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  300.00  in PharmChem on September 17, 2024 and sell it today you would earn a total of  5.00  from holding PharmChem or generate 1.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.56%
Values	Daily Returns

Procter Gamble  vs.  PharmChem

Procter Gamble

Risk-Adjusted Performance

0 of 100

Very Weak

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

PharmChem

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PharmChem has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Procter Gamble and PharmChem

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

The idea behind Procter Gamble and PharmChem 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.