Correlation Between Colgate Palmolive and LOréal SA
Can any of the company-specific risk be diversified away by investing in both Colgate Palmolive and LOréal 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 LOréal 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 LOréal 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 LOréal SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Colgate Palmolive and LOréal SA.
Diversification Opportunities for Colgate Palmolive and LOréal SA
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Colgate and LOréal is 0.71. 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 LOréal 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 LOréal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOréal SA has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and LOréal SA go up and down completely randomly.
Pair Corralation between Colgate Palmolive and LOréal SA
Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.49 times more return on investment than LOréal SA. However, Colgate Palmolive is 2.06 times less risky than LOréal SA. It trades about 0.07 of its potential returns per unit of risk. LOral SA is currently generating about -0.07 per unit of risk. If you would invest 8,288 in Colgate Palmolive on August 28, 2024 and sell it today you would earn a total of 1,246 from holding Colgate Palmolive or generate 15.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Colgate Palmolive vs. LOral SA
Performance |
| Timeline |
| Colgate Palmolive |
| LOréal SA |
Colgate Palmolive and LOréal SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Colgate Palmolive and LOréal SA
The main advantage of trading using opposite Colgate Palmolive and LOréal SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Colgate Palmolive position performs unexpectedly, LOréal 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 LOréal SA will offset losses from the drop in LOréal 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 |
| LOréal SA vs. Inter Parfums | LOréal SA vs. European Wax Center | LOréal SA vs. Estee Lauder Companies | LOréal 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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