Correlation Between Colgate Palmolive and PepsiCo
Can any of the company-specific risk be diversified away by investing in both Colgate Palmolive and PepsiCo 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 PepsiCo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Colgate Palmolive and PepsiCo, you can compare the effects of market volatilities on Colgate Palmolive and PepsiCo 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 PepsiCo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Colgate Palmolive and PepsiCo.
Diversification Opportunities for Colgate Palmolive and PepsiCo
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Colgate and PepsiCo is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo 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 PepsiCo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PepsiCo has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and PepsiCo go up and down completely randomly.
Pair Corralation between Colgate Palmolive and PepsiCo
Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.95 times more return on investment than PepsiCo. However, Colgate Palmolive is 1.06 times less risky than PepsiCo. It trades about 0.09 of its potential returns per unit of risk. PepsiCo is currently generating about 0.0 per unit of risk. If you would invest 7,707 in Colgate Palmolive on August 26, 2024 and sell it today you would earn a total of 1,785 from holding Colgate Palmolive or generate 23.16% 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. PepsiCo
Performance |
| Timeline |
| Colgate Palmolive |
| PepsiCo |
Colgate Palmolive and PepsiCo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Colgate Palmolive and PepsiCo
The main advantage of trading using opposite Colgate Palmolive and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Colgate Palmolive position performs unexpectedly, PepsiCo 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 PepsiCo will offset losses from the drop in PepsiCo's long position.| Colgate Palmolive vs. The Clorox | Colgate Palmolive vs. Procter Gamble | Colgate Palmolive vs. Unilever PLC ADR | Colgate Palmolive vs. Church Dwight |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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