Correlation Between Colgate Palmolive and LOreal Co

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

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

Diversification Opportunities for Colgate Palmolive and LOreal Co

0.79

Correlation Coefficient

Colgate Palmolive  LOreal Co

Poor diversification

The 3 months correlation between Colgate and LOreal is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and LOreal Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal Co ADR 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 LOreal Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal Co ADR has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and LOreal Co go up and down completely randomly.

Pair Corralation between Colgate Palmolive and LOreal Co

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.61 times more return on investment than LOreal Co. However, Colgate Palmolive is 1.64 times less risky than LOreal Co. It trades about -0.14 of its potential returns per unit of risk. LOreal Co ADR is currently generating about -0.09 per unit of risk. If you would invest  10,491  in Colgate Palmolive on September 15, 2024 and sell it today you would lose (1,147) from holding Colgate Palmolive or give up 10.93% of portfolio value over 90 days.

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

Colgate Palmolive  vs.  LOreal Co ADR

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 conflicting 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.

LOreal Co ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOreal Co ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Colgate Palmolive and LOreal Co

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

The idea behind Colgate Palmolive and LOreal Co ADR 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.