Correlation Between Procter Gamble and Federal Signal
Can any of the company-specific risk be diversified away by investing in both Procter Gamble and Federal Signal 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 Federal Signal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Procter Gamble and Federal Signal, you can compare the effects of market volatilities on Procter Gamble and Federal Signal 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 Federal Signal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and Federal Signal.
Diversification Opportunities for Procter Gamble and Federal Signal
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Procter and Federal is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and Federal Signal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Signal 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 are associated (or correlated) with Federal Signal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Signal has no effect on the direction of Procter Gamble i.e., Procter Gamble and Federal Signal go up and down completely randomly.
Pair Corralation between Procter Gamble and Federal Signal
Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 2.36 times less return on investment than Federal Signal. But when comparing it to its historical volatility, Procter Gamble is 1.92 times less risky than Federal Signal. It trades about 0.07 of its potential returns per unit of risk. Federal Signal is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 5,371 in Federal Signal on August 27, 2024 and sell it today you would earn a total of 4,383 from holding Federal Signal or generate 81.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Procter Gamble vs. Federal Signal
Performance |
| Timeline |
| Procter Gamble |
| Federal Signal |
Procter Gamble and Federal Signal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Procter Gamble and Federal Signal
The main advantage of trading using opposite Procter Gamble and Federal Signal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble position performs unexpectedly, Federal Signal 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 Federal Signal will offset losses from the drop in Federal Signal's long position.| Procter Gamble vs. Unilever PLC ADR | Procter Gamble vs. Estee Lauder Companies | Procter Gamble vs. ELF Beauty | Procter Gamble vs. Coty Inc |
| Federal Signal vs. Energy Recovery | Federal Signal vs. CECO Environmental Corp | Federal Signal vs. 374Water Common Stock | Federal Signal vs. CO2 Solutions |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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