Correlation Between Procter Gamble and Brown Forman

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

Diversification Opportunities for Procter Gamble and Brown Forman

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Procter and Brown is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and Brown Forman Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman 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 Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of Procter Gamble i.e., Procter Gamble and Brown Forman go up and down completely randomly.

Pair Corralation between Procter Gamble and Brown Forman

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 0.83 times more return on investment than Brown Forman. However, Procter Gamble is 1.2 times less risky than Brown Forman. It trades about -0.01 of its potential returns per unit of risk. Brown Forman is currently generating about -0.01 per unit of risk. If you would invest  13,765  in Procter Gamble on July 8, 2022 and sell it today you would lose (1,117)  from holding Procter Gamble or give up 8.11% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Procter Gamble  vs.  Brown Forman Inc

 Performance (%) 
       Timeline  
Procter Gamble 
Procter Performance
0 of 100
Over the last 90 days Procter Gamble has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Procter Price Channel

Brown Forman 
Brown Performance
0 of 100
Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Brown Forman is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Brown Price Channel

Procter Gamble and Brown Forman Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Procter Gamble and Brown Forman

The main advantage of trading using opposite Procter Gamble and Brown Forman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble position performs unexpectedly, Brown Forman 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 Brown Forman will offset losses from the drop in Brown Forman's long position.
Procter Gamble vs. Amazon Inc
The idea behind Procter Gamble and Brown Forman 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.
Brown Forman vs. Amazon Inc
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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