Correlation Between Colgate Palmolive and LOral SA
Can any of the company-specific risk be diversified away by investing in both Colgate Palmolive and LOral SA 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 Colgate Palmolive and LOral SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Colgate Palmolive and LOral SA, you can compare the effects of market volatilities on Colgate Palmolive and LOral SA 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 Colgate Palmolive with a short position of LOral SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Colgate Palmolive and LOral SA.
Diversification Opportunities for Colgate Palmolive and LOral SA
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Colgate and LOral is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOral SA and Colgate Palmolive 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 Colgate Palmolive are associated (or correlated) with LOral SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOral SA has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and LOral SA go up and down completely randomly.
Pair Corralation between Colgate Palmolive and LOral SA
Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.5 times more return on investment than LOral SA. However, Colgate Palmolive is 2.0 times less risky than LOral SA. It trades about 0.08 of its potential returns per unit of risk. LOral SA is currently generating about -0.02 per unit of risk. If you would invest 7,315 in Colgate Palmolive on August 31, 2024 and sell it today you would earn a total of 2,348 from holding Colgate Palmolive or generate 32.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Colgate Palmolive vs. LOral SA
Performance |
| Timeline |
| Colgate Palmolive |
| LOral SA |
Colgate Palmolive and LOral SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Colgate Palmolive and LOral SA
The main advantage of trading using opposite Colgate Palmolive and LOral SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Colgate Palmolive position performs unexpectedly, LOral SA 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 LOral SA will offset losses from the drop in LOral SA's long position.| Colgate Palmolive vs. The Clorox | Colgate Palmolive vs. Procter Gamble | Colgate Palmolive vs. Unilever PLC ADR | Colgate Palmolive vs. Church Dwight |
| LOral SA vs. Inter Parfums | LOral SA vs. European Wax Center | LOral SA vs. Estee Lauder Companies | LOral SA vs. Reckitt Benckiser Group |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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