Correlation Between Colgate Palmolive and L’Oreal Co
Can any of the company-specific risk be diversified away by investing in both Colgate Palmolive 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 Colgate Palmolive 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 Colgate Palmolive and LOreal Co ADR, you can compare the effects of market volatilities on Colgate Palmolive 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 Colgate Palmolive with a short position of L’Oreal Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of Colgate Palmolive and L’Oreal Co.
Diversification Opportunities for Colgate Palmolive and L’Oreal Co
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Colgate and L’Oreal is 0.82. 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 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 Colgate Palmolive i.e., Colgate Palmolive and L’Oreal Co go up and down completely randomly.
Pair Corralation between Colgate Palmolive and L’Oreal Co
Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.84 times more return on investment than L’Oreal Co. However, Colgate Palmolive is 1.2 times less risky than L’Oreal Co. It trades about -0.01 of its potential returns per unit of risk. LOreal Co ADR is currently generating about -0.38 per unit of risk. If you would invest 9,574 in Colgate Palmolive on August 27, 2024 and sell it today you would lose (40.00) from holding Colgate Palmolive or give up 0.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Colgate Palmolive vs. LOreal Co ADR
Performance |
| Timeline |
| Colgate Palmolive |
| LOreal Co ADR |
Colgate Palmolive and L’Oreal Co Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Colgate Palmolive and L’Oreal Co
The main advantage of trading using opposite Colgate Palmolive and L’Oreal Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Colgate Palmolive 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.| Colgate Palmolive vs. The Clorox | Colgate Palmolive vs. Procter Gamble | Colgate Palmolive vs. Unilever PLC ADR | Colgate Palmolive vs. Church Dwight |
| L’Oreal Co vs. Embotelladora Andina SA | L’Oreal Co vs. Signet International Holdings | L’Oreal Co vs. National Beverage Corp | L’Oreal Co vs. PT Astra International |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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