Correlation Between Colgate Palmolive and LOreal Co
Can any of the company-specific risk be diversified away by investing in both Colgate Palmolive and LOreal 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 Colgate Palmolive and LOreal Co into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Colgate Palmolive and LOreal Co ADR, you can compare the effects of market volatilities on Colgate Palmolive and LOreal 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 Colgate Palmolive with a short position of LOreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Colgate Palmolive and LOreal Co.
Diversification Opportunities for Colgate Palmolive and LOreal Co
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Colgate and LOreal is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive 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 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 LOreal 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 Colgate Palmolive i.e., Colgate Palmolive and LOreal Co go up and down completely randomly.
Pair Corralation between Colgate Palmolive and LOreal Co
Allowing for the 90-day total investment horizon Colgate Palmolive is expected to under-perform the LOreal Co. But the stock apears to be less risky and, when comparing its historical volatility, Colgate Palmolive is 1.43 times less risky than LOreal Co. The stock trades about -0.27 of its potential returns per unit of risk. The LOreal Co ADR is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 7,005 in LOreal Co ADR on October 20, 2024 and sell it today you would earn a total of 56.00 from holding LOreal Co ADR or generate 0.8% 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. LOreal Co ADR
Performance |
| Timeline |
| Colgate Palmolive |
| LOreal Co ADR |
Colgate Palmolive and LOreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Colgate Palmolive and LOreal Co
The main advantage of trading using opposite Colgate Palmolive and LOreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Colgate Palmolive position performs unexpectedly, LOreal 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 LOreal Co will offset losses from the drop in LOreal Co's long position.| Colgate Palmolive vs. The Clorox | Colgate Palmolive vs. Procter Gamble | Colgate Palmolive vs. Unilever PLC ADR | Colgate Palmolive vs. Church Dwight |
| LOreal Co vs. Unilever PLC | LOreal Co vs. Estee Lauder Companies | LOreal Co vs. Church Dwight | LOreal 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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