Correlation Between Alphabet and Procter Gamble

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

By analyzing existing cross correlation between Alphabet Inc Class C and Procter Gamble Health, you can compare the effects of market volatilities on Alphabet 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 Alphabet with a short position of Procter Gamble. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and Procter Gamble.

Diversification Opportunities for Alphabet and Procter Gamble

0.2

Correlation Coefficient

Alphabet  Procter Gamble

Modest diversification

The 3 months correlation between Alphabet and Procter is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and Procter Gamble Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble Health and Alphabet 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 Alphabet Inc Class C 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 Health has no effect on the direction of Alphabet i.e., Alphabet and Procter Gamble go up and down completely randomly.

Pair Corralation between Alphabet and Procter Gamble

Given the investment horizon of 90 days Alphabet Inc Class C is expected to generate 0.86 times more return on investment than Procter Gamble. However, Alphabet Inc Class C is 1.16 times less risky than Procter Gamble. It trades about 0.09 of its potential returns per unit of risk. Procter Gamble Health is currently generating about 0.01 per unit of risk. If you would invest  15,840  in Alphabet Inc Class C on August 31, 2024 and sell it today you would earn a total of  1,242  from holding Alphabet Inc Class C or generate 7.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Alphabet Inc Class C  vs.  Procter Gamble Health

Alphabet Class C

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Procter Gamble Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Procter Gamble Health has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Procter Gamble is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alphabet and Procter Gamble

The main advantage of trading using opposite Alphabet and Procter Gamble positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C and Procter Gamble Health 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.