Correlation Between Church Dwight and Colgate Palmolive
Can any of the company-specific risk be diversified away by investing in both Church Dwight and Colgate Palmolive 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 Church Dwight and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Church Dwight and Colgate Palmolive, you can compare the effects of market volatilities on Church Dwight and Colgate Palmolive 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 Church Dwight with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Church Dwight and Colgate Palmolive.
Diversification Opportunities for Church Dwight and Colgate Palmolive
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Church and Colgate is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Church Dwight and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Church Dwight 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 Church Dwight are associated (or correlated) with Colgate Palmolive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colgate Palmolive has no effect on the direction of Church Dwight i.e., Church Dwight and Colgate Palmolive go up and down completely randomly.
Pair Corralation between Church Dwight and Colgate Palmolive
Considering the 90-day investment horizon Church Dwight is expected to generate 1.15 times more return on investment than Colgate Palmolive. However, Church Dwight is 1.15 times more volatile than Colgate Palmolive. It trades about 0.08 of its potential returns per unit of risk. Colgate Palmolive is currently generating about 0.03 per unit of risk. If you would invest 10,471 in Church Dwight on November 1, 2024 and sell it today you would earn a total of 243.50 from holding Church Dwight or generate 2.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Church Dwight vs. Colgate Palmolive
Performance |
| Timeline |
| Church Dwight |
| Colgate Palmolive |
Church Dwight and Colgate Palmolive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Church Dwight and Colgate Palmolive
The main advantage of trading using opposite Church Dwight and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Church Dwight position performs unexpectedly, Colgate Palmolive 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 Colgate Palmolive will offset losses from the drop in Colgate Palmolive's long position.| Church Dwight vs. Kimberly Clark | Church Dwight vs. Colgate Palmolive | Church Dwight vs. Unilever PLC ADR | Church Dwight vs. Procter Gamble |
| Colgate Palmolive vs. The Clorox | Colgate Palmolive vs. Procter Gamble | Colgate Palmolive vs. Unilever PLC ADR | Colgate Palmolive vs. Church Dwight |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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