Correlation Between Consumer Products and Colgate Palmolive
Can any of the company-specific risk be diversified away by investing in both Consumer Products 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 Consumer Products and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consumer Products Fund and Colgate Palmolive, you can compare the effects of market volatilities on Consumer Products 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 Consumer Products with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consumer Products and Colgate Palmolive.
Diversification Opportunities for Consumer Products and Colgate Palmolive
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Consumer and Colgate is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Products Fund and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Consumer Products 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 Consumer Products Fund 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 Consumer Products i.e., Consumer Products and Colgate Palmolive go up and down completely randomly.
Pair Corralation between Consumer Products and Colgate Palmolive
Assuming the 90 days horizon Consumer Products is expected to generate 1.78 times less return on investment than Colgate Palmolive. In addition to that, Consumer Products is 1.14 times more volatile than Colgate Palmolive. It trades about 0.05 of its total potential returns per unit of risk. Colgate Palmolive is currently generating about 0.1 per unit of volatility. If you would invest 7,728 in Colgate Palmolive on August 29, 2024 and sell it today you would earn a total of 1,930 from holding Colgate Palmolive or generate 24.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consumer Products Fund vs. Colgate Palmolive
Performance |
| Timeline |
| Consumer Products |
| Colgate Palmolive |
Consumer Products and Colgate Palmolive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consumer Products and Colgate Palmolive
The main advantage of trading using opposite Consumer Products and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Products 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.| Consumer Products vs. Kellanova | Consumer Products vs. Bunge Limited | Consumer Products vs. BJs Wholesale Club | Consumer Products vs. Colgate Palmolive |
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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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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