Correlation Between GM and Colgate Palmolive
Can any of the company-specific risk be diversified away by investing in both GM and Colgate Palmolive 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 GM and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Colgate Palmolive, you can compare the effects of market volatilities on GM and Colgate Palmolive 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 GM with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Colgate Palmolive.
Diversification Opportunities for GM and Colgate Palmolive
-0.79 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and Colgate is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and GM 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 General Motors are associated (or correlated) with Colgate Palmolive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colgate Palmolive has no effect on the direction of GM i.e., GM and Colgate Palmolive go up and down completely randomly.
Pair Corralation between GM and Colgate Palmolive
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.54 times more return on investment than Colgate Palmolive. However, GM is 1.54 times more volatile than Colgate Palmolive. It trades about 0.32 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.01 per unit of risk. If you would invest 5,273 in General Motors on August 28, 2024 and sell it today you would earn a total of 747.00 from holding General Motors or generate 14.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Colgate Palmolive
Performance |
| Timeline |
| General Motors |
| Colgate Palmolive |
GM and Colgate Palmolive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Colgate Palmolive
The main advantage of trading using opposite GM and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Colgate Palmolive 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 Colgate Palmolive will offset losses from the drop in Colgate Palmolive's long position.The idea behind General Motors and Colgate Palmolive pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
Other Complementary Tools
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins | |
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments |