Correlation Between Colgate Palmolive and LOral SA

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

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

Diversification Opportunities for Colgate Palmolive and LOral SA

0.48

Correlation Coefficient

Colgate Palmolive  LOral SA

Very weak diversification

The 3 months correlation between Colgate and LOral is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOral SA 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 LOral SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOral SA has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and LOral SA go up and down completely randomly.

Pair Corralation between Colgate Palmolive and LOral SA

Assuming the 90 days trading horizon Colgate Palmolive is expected to generate 0.59 times more return on investment than LOral SA. However, Colgate Palmolive is 1.69 times less risky than LOral SA. It trades about -0.06 of its potential returns per unit of risk. LOral SA is currently generating about -0.1 per unit of risk. If you would invest  9,263  in Colgate Palmolive on September 24, 2024 and sell it today you would lose (395.00) from holding Colgate Palmolive or give up 4.26% of portfolio value over 90 days.

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

Colgate Palmolive  vs.  LOral SA

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. In spite of comparatively stable basic indicators, Colgate Palmolive is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

LOral SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOral SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 Colgate Palmolive and LOral SA

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

The idea behind Colgate Palmolive and LOral SA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.