Correlation Between CME and Procter Gamble
Can any of the company-specific risk be diversified away by investing in both CME 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 CME and Procter Gamble into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CME Group and The Procter Gamble, you can compare the effects of market volatilities on CME 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 CME with a short position of Procter Gamble. Check out your portfolio center. Please also check ongoing floating volatility patterns of CME and Procter Gamble.
Diversification Opportunities for CME and Procter Gamble
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between CME and Procter is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and The Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble and CME 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 CME Group 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 CME i.e., CME and Procter Gamble go up and down completely randomly.
Pair Corralation between CME and Procter Gamble
Assuming the 90 days trading horizon CME is expected to generate 1.63 times less return on investment than Procter Gamble. But when comparing it to its historical volatility, CME Group is 1.16 times less risky than Procter Gamble. It trades about 0.09 of its potential returns per unit of risk. The Procter Gamble is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 5,056 in The Procter Gamble on September 2, 2024 and sell it today you would earn a total of 2,527 from holding The Procter Gamble or generate 49.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.2% |
| Values | Daily Returns |
CME Group vs. The Procter Gamble
Performance |
| Timeline |
| CME Group |
| Procter Gamble |
CME and Procter Gamble Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CME and Procter Gamble
The main advantage of trading using opposite CME and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CME 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.The idea behind CME Group and The Procter Gamble 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.| Procter Gamble vs. United Rentals | Procter Gamble vs. Tyson Foods | Procter Gamble vs. salesforce inc | Procter Gamble vs. Beyond Meat |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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