Correlation Between Procter Gamble and NIKE

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Can any of the company-specific risk be diversified away by investing in both Procter Gamble and NIKE 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 NIKE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Procter Gamble DRC and NIKE Inc, you can compare the effects of market volatilities on Procter Gamble and NIKE 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 NIKE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and NIKE.

Diversification Opportunities for Procter Gamble and NIKE

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Procter and NIKE is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble DRC and NIKE Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIKE Inc 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 DRC are associated (or correlated) with NIKE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIKE Inc has no effect on the direction of Procter Gamble i.e., Procter Gamble and NIKE go up and down completely randomly.

Pair Corralation between Procter Gamble and NIKE

Assuming the 90 days horizon Procter Gamble DRC is expected to generate 0.75 times more return on investment than NIKE. However, Procter Gamble DRC is 1.32 times less risky than NIKE. It trades about -0.05 of its potential returns per unit of risk. NIKE Inc is currently generating about -0.09 per unit of risk. If you would invest  1,352,500  in Procter Gamble DRC on September 19, 2024 and sell it today you would lose (45,000) from holding Procter Gamble DRC or give up 3.33% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Procter Gamble DRC  vs.  NIKE Inc

 Performance 
       Timeline  
Procter Gamble DRC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Procter Gamble DRC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
NIKE Inc 

Risk-Adjusted Performance

0 of 100

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

Procter Gamble and NIKE Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Procter Gamble and NIKE

The main advantage of trading using opposite Procter Gamble and NIKE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble position performs unexpectedly, NIKE 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 NIKE will offset losses from the drop in NIKE's long position.
The idea behind Procter Gamble DRC and NIKE Inc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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