Correlation Between Bank of America and Colgate Palmolive

Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bank of America and Colgate Palmolive, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Colgate Palmolive.

Diversification Opportunities for Bank of America and Colgate Palmolive

-0.25

Correlation Coefficient

Bank of America  Colgate Palmolive

Very good diversification

The 3 months correlation between Bank and Colgate is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Bank of America and Colgate Palmolive

Considering the 90-day investment horizon Bank of America is expected to generate 1.1 times more return on investment than Colgate Palmolive. However, Bank of America is 1.1 times more volatile than Colgate Palmolive. It trades about 0.07 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.04 per unit of risk. If you would invest  4,402  in Bank of America on May 13, 2025 and sell it today you would earn a total of  214.00  from holding Bank of America or generate 4.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Bank of America  vs.  Colgate Palmolive

Bank of America

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of America are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Bank of America is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Colgate Palmolive

Risk-Adjusted Performance

Weakest

Over the last 90 days Colgate Palmolive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Colgate Palmolive is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Bank of America and Colgate Palmolive

The main advantage of trading using opposite Bank of America and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.

The idea behind Bank of America and Colgate Palmolive pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.