Correlation Between British American and Procter Gamble
Can any of the company-specific risk be diversified away by investing in both British American and Procter Gamble 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 British American and Procter Gamble into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and The Procter Gamble, you can compare the effects of market volatilities on British American and Procter Gamble 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 British American with a short position of Procter Gamble. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Procter Gamble.
Diversification Opportunities for British American and Procter Gamble
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between British and Procter is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and The Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble and British American 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 British American Tobacco are associated (or correlated) with Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of British American i.e., British American and Procter Gamble go up and down completely randomly.
Pair Corralation between British American and Procter Gamble
Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.85 times more return on investment than Procter Gamble. However, British American Tobacco is 1.18 times less risky than Procter Gamble. It trades about 0.45 of its potential returns per unit of risk. The Procter Gamble is currently generating about 0.27 per unit of risk. If you would invest 3,988 in British American Tobacco on August 27, 2024 and sell it today you would earn a total of 364.00 from holding British American Tobacco or generate 9.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. The Procter Gamble
Performance |
| Timeline |
| British American Tobacco |
| Procter Gamble |
British American and Procter Gamble Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Procter Gamble
The main advantage of trading using opposite British American and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Procter Gamble 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 Procter Gamble will offset losses from the drop in Procter Gamble's long position.| British American vs. Fras le SA | British American vs. Clave Indices De | British American vs. BTG Pactual Logstica | British American vs. Telefonaktiebolaget LM Ericsson |
| Procter Gamble vs. Unilever PLC | Procter Gamble vs. Colgate Palmolive | Procter Gamble vs. Natura Co Holding | Procter Gamble vs. Bombril SA |
Check out your portfolio center.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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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