Correlation Between Procter Gamble and Adams Natural

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

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

Diversification Opportunities for Procter Gamble and Adams Natural

-0.39

Correlation Coefficient

Procter Gamble  Adams Natural

Very good diversification

The 3 months correlation between Procter and Adams is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and Adams Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Natural Resources 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 Adams Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Natural Resources has no effect on the direction of Procter Gamble i.e., Procter Gamble and Adams Natural go up and down completely randomly.

Pair Corralation between Procter Gamble and Adams Natural

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 2.22 times less return on investment than Adams Natural. In addition to that, Procter Gamble is 1.09 times more volatile than Adams Natural Resources. It trades about 0.04 of its total potential returns per unit of risk. Adams Natural Resources is currently generating about 0.1 per unit of volatility. If you would invest  2,264  in Adams Natural Resources on July 6, 2024 and sell it today you would earn a total of  156.00  from holding Adams Natural Resources or generate 6.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Procter Gamble  vs.  Adams Natural Resources

Procter Gamble

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Adams Natural Resources

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of very fragile technical and fundamental indicators, Adams Natural may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Procter Gamble and Adams Natural

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

The idea behind Procter Gamble and Adams Natural Resources 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.