Correlation Between Colgate Palmolive and ELF Beauty

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

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

Diversification Opportunities for Colgate Palmolive and ELF Beauty

-0.44

Correlation Coefficient

Colgate Palmolive  ELF Beauty

Very good diversification

The 3 months correlation between Colgate and ELF is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and ELF Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELF Beauty 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 ELF Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELF Beauty has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and ELF Beauty go up and down completely randomly.

Pair Corralation between Colgate Palmolive and ELF Beauty

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to under-perform the ELF Beauty. But the stock apears to be less risky and, when comparing its historical volatility, Colgate Palmolive is 3.82 times less risky than ELF Beauty. The stock trades about -0.11 of its potential returns per unit of risk. The ELF Beauty is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  5,347  in ELF Beauty on April 20, 2025 and sell it today you would earn a total of  6,416  from holding ELF Beauty or generate 119.99% return on investment over 90 days.

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

Colgate Palmolive  vs.  ELF Beauty

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 latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

ELF Beauty

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ELF Beauty are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, ELF Beauty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Colgate Palmolive and ELF Beauty

The main advantage of trading using opposite Colgate Palmolive and ELF Beauty positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Colgate Palmolive position performs unexpectedly, ELF Beauty 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 ELF Beauty will offset losses from the drop in ELF Beauty's long position.

The idea behind Colgate Palmolive and ELF Beauty 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.