Correlation Between Big Tree and Colgate Palmolive

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

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

Diversification Opportunities for Big Tree and Colgate Palmolive

0.68

Correlation Coefficient

Big Tree  Colgate Palmolive

Poor diversification

The 3 months correlation between Big and Colgate is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Big Tree Cloud and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Big Tree 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 Big Tree Cloud 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 Big Tree i.e., Big Tree and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Big Tree and Colgate Palmolive

Considering the 90-day investment horizon Big Tree Cloud is expected to generate 13.15 times more return on investment than Colgate Palmolive. However, Big Tree is 13.15 times more volatile than Colgate Palmolive. It trades about -0.01 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.14 per unit of risk. If you would invest  592.00  in Big Tree Cloud on September 2, 2024 and sell it today you would lose (304.00) from holding Big Tree Cloud or give up 51.35% of portfolio value over 90 days.

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

Big Tree Cloud  vs.  Colgate Palmolive

Big Tree Cloud

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Big Tree and Colgate Palmolive

The main advantage of trading using opposite Big Tree and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Tree 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 Big Tree Cloud 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.