Correlation Between Church Dwight and Essity AB

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

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

Diversification Opportunities for Church Dwight and Essity AB

-0.61

Correlation Coefficient

Church Dwight  Essity AB

Excellent diversification

The 3 months correlation between Church and Essity is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Church Dwight and Essity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essity AB 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 Essity AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essity AB has no effect on the direction of Church Dwight i.e., Church Dwight and Essity AB go up and down completely randomly.

Pair Corralation between Church Dwight and Essity AB

Considering the 90-day investment horizon Church Dwight is expected to generate 0.51 times more return on investment than Essity AB. However, Church Dwight is 1.95 times less risky than Essity AB. It trades about 0.03 of its potential returns per unit of risk. Essity AB is currently generating about -0.09 per unit of risk. If you would invest  10,377  in Church Dwight on September 13, 2024 and sell it today you would earn a total of  181.00  from holding Church Dwight or generate 1.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Church Dwight  vs.  Essity AB

Church Dwight

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Church Dwight are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Essity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essity AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Church Dwight and Essity AB

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

The idea behind Church Dwight and Essity AB 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.