Correlation Between Procter Gamble and Tree House

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

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

Diversification Opportunities for Procter Gamble and Tree House

0.26

Correlation Coefficient

Procter Gamble  Tree House

Modest diversification

The 3 months correlation between Procter and Tree is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble Health and Tree House Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tree House Education 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 Health are associated (or correlated) with Tree House. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tree House Education has no effect on the direction of Procter Gamble i.e., Procter Gamble and Tree House go up and down completely randomly.

Pair Corralation between Procter Gamble and Tree House

Assuming the 90 days trading horizon Procter Gamble is expected to generate 1.98 times less return on investment than Tree House. But when comparing it to its historical volatility, Procter Gamble Health is 1.66 times less risky than Tree House. It trades about 0.22 of its potential returns per unit of risk. Tree House Education is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,550  in Tree House Education on September 22, 2024 and sell it today you would earn a total of  251.00  from holding Tree House Education or generate 16.19% return on investment over 90 days.

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

Procter Gamble Health  vs.  Tree House Education

Procter Gamble Health

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble Health are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Procter Gamble may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tree House Education

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tree House Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Tree House is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Procter Gamble and Tree House

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

The idea behind Procter Gamble Health and Tree House Education 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.