Correlation Between Kao and Colgate Palmolive
Can any of the company-specific risk be diversified away by investing in both Kao 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 Kao and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kao Corporation and Colgate Palmolive, you can compare the effects of market volatilities on Kao 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 Kao with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kao and Colgate Palmolive.
Diversification Opportunities for Kao and Colgate Palmolive
-0.09 | Correlation Coefficient |
Good diversification
The 3 months correlation between Kao and Colgate is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Kao Corp. and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Kao 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 Kao Corporation 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 Kao i.e., Kao and Colgate Palmolive go up and down completely randomly.
Pair Corralation between Kao and Colgate Palmolive
Assuming the 90 days horizon Kao Corporation is expected to under-perform the Colgate Palmolive. In addition to that, Kao is 2.89 times more volatile than Colgate Palmolive. It trades about -0.22 of its total potential returns per unit of risk. Colgate Palmolive is currently generating about 0.13 per unit of volatility. If you would invest 9,361 in Colgate Palmolive on September 3, 2024 and sell it today you would earn a total of 302.00 from holding Colgate Palmolive or generate 3.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kao Corp. vs. Colgate Palmolive
Performance |
| Timeline |
| Kao Corporation |
| Colgate Palmolive |
Kao and Colgate Palmolive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kao and Colgate Palmolive
The main advantage of trading using opposite Kao and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kao 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 Kao Corporation 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. Highway Holdings Limited | Colgate Palmolive vs. QCR Holdings | Colgate Palmolive vs. Partner Communications | Colgate Palmolive vs. Acumen Pharmaceuticals |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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