Correlation Between Procter Gamble and HE Equipment

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

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

Diversification Opportunities for Procter Gamble and HE Equipment

-0.33

Correlation Coefficient

Procter Gamble  HE Equipment

Very good diversification

The 3 months correlation between Procter and HEES is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and HE Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HE Equipment Services 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 HE Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HE Equipment Services has no effect on the direction of Procter Gamble i.e., Procter Gamble and HE Equipment go up and down completely randomly.

Pair Corralation between Procter Gamble and HE Equipment

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 0.12 times more return on investment than HE Equipment. However, Procter Gamble is 8.24 times less risky than HE Equipment. It trades about 0.5 of its potential returns per unit of risk. HE Equipment Services is currently generating about -0.32 per unit of risk. If you would invest  15,510  in Procter Gamble on February 5, 2024 and sell it today you would earn a total of  936.00  from holding Procter Gamble or generate 6.03% 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.  HE Equipment Services

Procter Gamble

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 8 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

HE Equipment Services

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HE Equipment Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Procter Gamble and HE Equipment

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

The idea behind Procter Gamble and HE Equipment Services 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.