Correlation Between Colgate Palmolive and Bunge

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

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

Diversification Opportunities for Colgate Palmolive and Bunge

0.85

Correlation Coefficient

Colgate Palmolive  Bunge

Very poor diversification

The 3 months correlation between Colgate and Bunge is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Bunge Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bunge Limited 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 Bunge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bunge Limited has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Bunge go up and down completely randomly.

Pair Corralation between Colgate Palmolive and Bunge

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to under-perform the Bunge. But the stock apears to be less risky and, when comparing its historical volatility, Colgate Palmolive is 1.33 times less risky than Bunge. The stock trades about -0.14 of its potential returns per unit of risk. The Bunge Limited is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  9,855  in Bunge Limited on September 1, 2024 and sell it today you would lose (881.00) from holding Bunge Limited or give up 8.94% of portfolio value over 90 days.

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

Colgate Palmolive  vs.  Bunge Limited

Colgate Palmolive

Risk-Adjusted Performance

0 of 100

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.

Bunge Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bunge Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental 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 Colgate Palmolive and Bunge

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

The idea behind Colgate Palmolive and Bunge Limited 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.