Correlation Between United Bank and Colgate Palmolive
Can any of the company-specific risk be diversified away by investing in both United Bank 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 United Bank and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Bank and Colgate Palmolive Pakistan, you can compare the effects of market volatilities on United Bank 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 United Bank with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Bank and Colgate Palmolive.
Diversification Opportunities for United Bank and Colgate Palmolive
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between United and Colgate is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding United Bank and Colgate Palmolive Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and United Bank 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 United Bank 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 United Bank i.e., United Bank and Colgate Palmolive go up and down completely randomly.
Pair Corralation between United Bank and Colgate Palmolive
Assuming the 90 days trading horizon United Bank is expected to generate 0.88 times more return on investment than Colgate Palmolive. However, United Bank is 1.13 times less risky than Colgate Palmolive. It trades about 0.2 of its potential returns per unit of risk. Colgate Palmolive Pakistan is currently generating about 0.1 per unit of risk. If you would invest 6,664 in United Bank on September 2, 2024 and sell it today you would earn a total of 27,281 from holding United Bank or generate 409.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.79% |
| Values | Daily Returns |
United Bank vs. Colgate Palmolive Pakistan
Performance |
| Timeline |
| United Bank |
| Colgate Palmolive |
United Bank and Colgate Palmolive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Bank and Colgate Palmolive
The main advantage of trading using opposite United Bank and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Bank 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.| United Bank vs. Nimir Industrial Chemical | United Bank vs. EFU General Insurance | United Bank vs. Pakistan Tobacco | United Bank vs. United Insurance |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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