Correlation Between Procter Gamble and Premier Foods

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

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

Diversification Opportunities for Procter Gamble and Premier Foods

0.66

Correlation Coefficient

Procter Gamble  Premier Foods

Poor diversification

The 3 months correlation between Procter and Premier is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and Premier Foods Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier Foods Plc 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 Premier Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier Foods Plc has no effect on the direction of Procter Gamble i.e., Procter Gamble and Premier Foods go up and down completely randomly.

Pair Corralation between Procter Gamble and Premier Foods

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 1.79 times more return on investment than Premier Foods. However, Procter Gamble is 1.79 times more volatile than Premier Foods Plc. It trades about 0.12 of its potential returns per unit of risk. Premier Foods Plc is currently generating about -0.12 per unit of risk. If you would invest  16,619  in Procter Gamble on November 29, 2024 and sell it today you would earn a total of  578.00  from holding Procter Gamble or generate 3.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Procter Gamble  vs.  Premier Foods Plc

Procter Gamble

Risk-Adjusted Performance

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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Premier Foods Plc

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Procter Gamble and Premier Foods

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

The idea behind Procter Gamble and Premier Foods Plc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.