Correlation Between LOREAL ADR and Colgate Palmolive
Can any of the company-specific risk be diversified away by investing in both LOREAL ADR 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 LOREAL ADR and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between LOREAL ADR 15EO and Colgate Palmolive, you can compare the effects of market volatilities on LOREAL ADR 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 LOREAL ADR with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of LOREAL ADR and Colgate Palmolive.
Diversification Opportunities for LOREAL ADR and Colgate Palmolive
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between LOREAL and Colgate is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding LOREAL ADR 15EO and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and LOREAL ADR 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 LOREAL ADR 15EO 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 LOREAL ADR i.e., LOREAL ADR and Colgate Palmolive go up and down completely randomly.
Pair Corralation between LOREAL ADR and Colgate Palmolive
Assuming the 90 days trading horizon LOREAL ADR 15EO is expected to generate 1.7 times more return on investment than Colgate Palmolive. However, LOREAL ADR is 1.7 times more volatile than Colgate Palmolive. It trades about 0.04 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.04 per unit of risk. If you would invest 6,500 in LOREAL ADR 15EO on October 20, 2024 and sell it today you would earn a total of 150.00 from holding LOREAL ADR 15EO or generate 2.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
LOREAL ADR 15EO vs. Colgate Palmolive
Performance |
| Timeline |
| LOREAL ADR 15EO |
| Colgate Palmolive |
LOREAL ADR and Colgate Palmolive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with LOREAL ADR and Colgate Palmolive
The main advantage of trading using opposite LOREAL ADR and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LOREAL ADR 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.| LOREAL ADR vs. The Procter Gamble | LOREAL ADR vs. LOral SA | LOREAL ADR vs. LOral SA | LOREAL ADR vs. Unilever Plc |
| Colgate Palmolive vs. DEVRY EDUCATION GRP | Colgate Palmolive vs. Hyrican Informationssysteme Aktiengesellschaft | Colgate Palmolive vs. DATAGROUP SE | Colgate Palmolive vs. Automatic Data Processing |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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