Correlation Between Church Dwight and Colgate Palmolive

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

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

Diversification Opportunities for Church Dwight and Colgate Palmolive

0.41

Correlation Coefficient

Church Dwight  Colgate Palmolive

Very weak diversification

The 3 months correlation between Church and Colgate is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Church Dwight and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Church Dwight 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 Church Dwight 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 Church Dwight i.e., Church Dwight and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Church Dwight and Colgate Palmolive

Considering the 90-day investment horizon Church Dwight is expected to generate 1.29 times more return on investment than Colgate Palmolive. However, Church Dwight is 1.29 times more volatile than Colgate Palmolive. It trades about -0.03 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.08 per unit of risk. If you would invest  9,903  in Church Dwight on April 30, 2025 and sell it today you would lose (335.00) from holding Church Dwight or give up 3.38% of portfolio value over 90 days.

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

Church Dwight  vs.  Colgate Palmolive

Church Dwight

Risk-Adjusted Performance

Very Weak

Over the last 90 days Church Dwight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Colgate Palmolive

Risk-Adjusted Performance

Very Weak

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 Church Dwight and Colgate Palmolive

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

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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.