Correlation Between Procter Gamble and Abbott Laboratories

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

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

Diversification Opportunities for Procter Gamble and Abbott Laboratories

-0.38

Correlation Coefficient

Procter Gamble  Abbott Laboratories

Very good diversification

The 3 months correlation between Procter and Abbott is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding The Procter Gamble and Abbott Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Abbott Laboratories 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 The Procter Gamble are associated (or correlated) with Abbott Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Abbott Laboratories has no effect on the direction of Procter Gamble i.e., Procter Gamble and Abbott Laboratories go up and down completely randomly.

Pair Corralation between Procter Gamble and Abbott Laboratories

Assuming the 90 days trading horizon The Procter Gamble is expected to under-perform the Abbott Laboratories. But the stock apears to be less risky and, when comparing its historical volatility, The Procter Gamble is 1.1 times less risky than Abbott Laboratories. The stock trades about -0.06 of its potential returns per unit of risk. The Abbott Laboratories is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  5,884  in Abbott Laboratories on December 1, 2024 and sell it today you would earn a total of  877.00  from holding Abbott Laboratories or generate 14.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

The Procter Gamble  vs.  Abbott Laboratories

Procter Gamble

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Procter Gamble has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Abbott Laboratories

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Abbott Laboratories are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Abbott Laboratories sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Procter Gamble and Abbott Laboratories

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

The idea behind The Procter Gamble and Abbott Laboratories 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.