Correlation Between Reckitt Benckiser and Colgate Palmolive
Can any of the company-specific risk be diversified away by investing in both Reckitt Benckiser 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 Reckitt Benckiser and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Reckitt Benckiser Group and Colgate Palmolive, you can compare the effects of market volatilities on Reckitt Benckiser 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 Reckitt Benckiser with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reckitt Benckiser and Colgate Palmolive.
Diversification Opportunities for Reckitt Benckiser and Colgate Palmolive
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Reckitt and Colgate is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Reckitt Benckiser Group and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Reckitt Benckiser 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 Reckitt Benckiser Group 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 Reckitt Benckiser i.e., Reckitt Benckiser and Colgate Palmolive go up and down completely randomly.
Pair Corralation between Reckitt Benckiser and Colgate Palmolive
Assuming the 90 days horizon Reckitt Benckiser Group is expected to generate 1.37 times more return on investment than Colgate Palmolive. However, Reckitt Benckiser is 1.37 times more volatile than Colgate Palmolive. It trades about 0.06 of its potential returns per unit of risk. Colgate Palmolive is currently generating about 0.08 per unit of risk. If you would invest 1,229 in Reckitt Benckiser Group on August 31, 2024 and sell it today you would earn a total of 26.00 from holding Reckitt Benckiser Group or generate 2.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Reckitt Benckiser Group vs. Colgate Palmolive
Performance |
| Timeline |
| Reckitt Benckiser |
| Colgate Palmolive |
Reckitt Benckiser and Colgate Palmolive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Reckitt Benckiser and Colgate Palmolive
The main advantage of trading using opposite Reckitt Benckiser and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reckitt Benckiser 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.| Reckitt Benckiser vs. LOral SA | Reckitt Benckiser vs. LOreal Co ADR | Reckitt Benckiser vs. Unilever PLC ADR | Reckitt Benckiser vs. Kimberly Clark |
| 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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