Correlation Between MasterBrand and Colgate Palmolive

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

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

Diversification Opportunities for MasterBrand and Colgate Palmolive

-0.76

Correlation Coefficient

MasterBrand  Colgate Palmolive

Pay attention - limited upside

The 3 months correlation between MasterBrand and Colgate is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding MasterBrand and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and MasterBrand 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 MasterBrand 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 MasterBrand i.e., MasterBrand and Colgate Palmolive go up and down completely randomly.

Pair Corralation between MasterBrand and Colgate Palmolive

Considering the 90-day investment horizon MasterBrand is expected to under-perform the Colgate Palmolive. In addition to that, MasterBrand is 1.83 times more volatile than Colgate Palmolive. It trades about -0.17 of its total potential returns per unit of risk. Colgate Palmolive is currently generating about 0.07 per unit of volatility. If you would invest  8,520  in Colgate Palmolive on February 6, 2025 and sell it today you would earn a total of  580.00  from holding Colgate Palmolive or generate 6.81% return on investment over 90 days.

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

MasterBrand  vs.  Colgate Palmolive

MasterBrand

Risk-Adjusted Performance

Very Weak

Over the last 90 days MasterBrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in June 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Colgate Palmolive

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Colgate Palmolive are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Colgate Palmolive may actually be approaching a critical reversion point that can send shares even higher in June 2025.

Pair Trading with MasterBrand and Colgate Palmolive

The main advantage of trading using opposite MasterBrand and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MasterBrand 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 MasterBrand 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.