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

0.26

Correlation Coefficient

Colgate Palmolive  Church Dwight

Modest diversification

The 3 months correlation between Colgate and Church is 0.26. 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 1.2 times more return on investment than Church Dwight. However, Colgate Palmolive is 1.2 times more volatile than Church Dwight. It trades about 0.04 of its potential returns per unit of risk. Church Dwight is currently generating about -0.1 per unit of risk. If you would invest  9,070  in Colgate Palmolive on January 26, 2025 and sell it today you would earn a total of  321.00  from holding Colgate Palmolive or generate 3.54% return on investment over 90 days.

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

Colgate Palmolive  vs.  Church Dwight

Colgate Palmolive

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Colgate Palmolive are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

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 latest inconsistent performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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.

The idea behind Colgate Palmolive and Church Dwight 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.