Correlation Between Shell Pakistan and Colgate Palmolive
Can any of the company-specific risk be diversified away by investing in both Shell Pakistan 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 Shell Pakistan and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shell Pakistan and Colgate Palmolive Pakistan, you can compare the effects of market volatilities on Shell Pakistan 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 Shell Pakistan with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shell Pakistan and Colgate Palmolive.
Diversification Opportunities for Shell Pakistan and Colgate Palmolive
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Shell and Colgate is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Shell Pakistan and Colgate Palmolive Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Shell Pakistan 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 Shell Pakistan 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 Shell Pakistan i.e., Shell Pakistan and Colgate Palmolive go up and down completely randomly.
Pair Corralation between Shell Pakistan and Colgate Palmolive
Assuming the 90 days trading horizon Shell Pakistan is expected to generate 6.42 times less return on investment than Colgate Palmolive. But when comparing it to its historical volatility, Shell Pakistan is 1.37 times less risky than Colgate Palmolive. It trades about 0.05 of its potential returns per unit of risk. Colgate Palmolive Pakistan is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 130,832 in Colgate Palmolive Pakistan on August 27, 2024 and sell it today you would earn a total of 15,335 from holding Colgate Palmolive Pakistan or generate 11.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shell Pakistan vs. Colgate Palmolive Pakistan
Performance |
| Timeline |
| Shell Pakistan |
| Colgate Palmolive |
Shell Pakistan and Colgate Palmolive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shell Pakistan and Colgate Palmolive
The main advantage of trading using opposite Shell Pakistan and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shell Pakistan 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.| Shell Pakistan vs. Al Ghazi Tractors | Shell Pakistan vs. Nestle Pakistan | Shell Pakistan vs. Hinopak Motors | Shell Pakistan vs. Abbott Laboratories Pakistan |
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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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