Correlation Between Church Dwight and L’Oreal Co
Can any of the company-specific risk be diversified away by investing in both Church Dwight and L’Oreal Co 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 L’Oreal Co into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Church Dwight and LOreal Co ADR, you can compare the effects of market volatilities on Church Dwight and L’Oreal Co 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 L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Church Dwight and L’Oreal Co.
Diversification Opportunities for Church Dwight and L’Oreal Co
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Church and L’Oreal is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Church Dwight and LOreal Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal Co ADR 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 L’Oreal Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal Co ADR has no effect on the direction of Church Dwight i.e., Church Dwight and L’Oreal Co go up and down completely randomly.
Pair Corralation between Church Dwight and L’Oreal Co
Considering the 90-day investment horizon Church Dwight is expected to generate 2.88 times less return on investment than L’Oreal Co. But when comparing it to its historical volatility, Church Dwight is 1.02 times less risky than L’Oreal Co. It trades about 0.12 of its potential returns per unit of risk. LOreal Co ADR is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 6,911 in LOreal Co ADR on November 2, 2024 and sell it today you would earn a total of 675.00 from holding LOreal Co ADR or generate 9.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Church Dwight vs. LOreal Co ADR
Performance |
| Timeline |
| Church Dwight |
| LOreal Co ADR |
Church Dwight and L’Oreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Church Dwight and L’Oreal Co
The main advantage of trading using opposite Church Dwight and L’Oreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Church Dwight position performs unexpectedly, L’Oreal Co 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 L’Oreal Co will offset losses from the drop in L’Oreal Co's long position.| Church Dwight vs. Kimberly Clark | Church Dwight vs. Colgate Palmolive | Church Dwight vs. Unilever PLC ADR | Church Dwight vs. Procter Gamble |
| L’Oreal Co vs. Unilever PLC | L’Oreal Co vs. Estee Lauder Companies | L’Oreal Co vs. Church Dwight | L’Oreal Co vs. Mannatech Incorporated |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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