Correlation Between Colgate Palmolive and Church Dwight
Can any of the company-specific risk be diversified away by investing in both Colgate Palmolive and Church Dwight 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 Colgate Palmolive and Church Dwight into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Colgate Palmolive and Church Dwight, you can compare the effects of market volatilities on Colgate Palmolive and Church Dwight 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 Colgate Palmolive with a short position of Church Dwight. Check out your portfolio center. Please also check ongoing floating volatility patterns of Colgate Palmolive and Church Dwight.
Diversification Opportunities for Colgate Palmolive and Church Dwight
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Colgate and Church is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Church Dwight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Church Dwight and Colgate Palmolive 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 Colgate Palmolive are associated (or correlated) with Church Dwight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Church Dwight has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Church Dwight go up and down completely randomly.
Pair Corralation between Colgate Palmolive and Church Dwight
Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 7.7 times less return on investment than Church Dwight. But when comparing it to its historical volatility, Colgate Palmolive is 1.19 times less risky than Church Dwight. It trades about 0.04 of its potential returns per unit of risk. Church Dwight is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 10,284 in Church Dwight on January 26, 2024 and sell it today you would earn a total of 451.00 from holding Church Dwight or generate 4.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Colgate Palmolive vs. Church Dwight
Performance |
| Timeline |
| Colgate Palmolive |
| Church Dwight |
Colgate Palmolive and Church Dwight Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Colgate Palmolive and Church Dwight
The main advantage of trading using opposite Colgate Palmolive and Church Dwight positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Colgate Palmolive position performs unexpectedly, Church Dwight 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 Church Dwight will offset losses from the drop in Church Dwight's long position.| Colgate Palmolive vs. Unilever PLC ADR | Colgate Palmolive vs. Kimberly Clark | Colgate Palmolive vs. Estee Lauder Companies | Colgate Palmolive vs. Reckitt Benckiser Group |
| Church Dwight vs. Unilever PLC ADR | Church Dwight vs. Kimberly Clark | Church Dwight vs. Estee Lauder Companies | Church Dwight vs. Reckitt Benckiser Group |
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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