Correlation Between Disney and Colgate Palmolive

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

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

Diversification Opportunities for Disney and Colgate Palmolive

-0.56

Correlation Coefficient

Disney  Colgate Palmolive

Excellent diversification

The 3 months correlation between Disney and Colgate is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding The Walt Disney and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Disney 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 The Walt Disney 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 Disney i.e., Disney and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Disney and Colgate Palmolive

Assuming the 90 days trading horizon The Walt Disney is expected to generate 1.21 times more return on investment than Colgate Palmolive. However, Disney is 1.21 times more volatile than Colgate Palmolive. It trades about 0.2 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.11 per unit of risk. If you would invest  187,365  in The Walt Disney on September 28, 2024 and sell it today you would earn a total of  40,435  from holding The Walt Disney or generate 21.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

The Walt Disney  vs.  Colgate Palmolive

Walt Disney

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Walt Disney are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Disney showed solid returns over the last few months and may actually be approaching a breakup point.

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 latest weak performance, the Stock's primary 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 Disney and Colgate Palmolive

The main advantage of trading using opposite Disney and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Disney 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 The Walt Disney 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.

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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.