Correlation Between Este Lauder and Colgate Palmolive

Can any of the company-specific risk be diversified away by investing in both Este Lauder 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 Este Lauder 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 Este Lauder and Colgate Palmolive, you can compare the effects of market volatilities on Este Lauder 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 Este Lauder with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Este Lauder and Colgate Palmolive.

Diversification Opportunities for Este Lauder and Colgate Palmolive

0.71

Correlation Coefficient

Este Lauder  Colgate Palmolive

Poor diversification

The 3 months correlation between Este and Colgate is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding The Este Lauder and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Este Lauder 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 Este Lauder 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 Este Lauder i.e., Este Lauder and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Este Lauder and Colgate Palmolive

Assuming the 90 days trading horizon The Este Lauder is expected to generate 2.32 times more return on investment than Colgate Palmolive. However, Este Lauder is 2.32 times more volatile than Colgate Palmolive. It trades about 0.08 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.08 per unit of risk. If you would invest  6,906  in The Este Lauder on September 24, 2024 and sell it today you would earn a total of  254.00  from holding The Este Lauder or generate 3.68% return on investment over 90 days.

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

The Este Lauder  vs.  Colgate Palmolive

Este Lauder

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Este Lauder 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.

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 nearly stable basic indicators, Colgate Palmolive is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Este Lauder and Colgate Palmolive

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

Check out your portfolio center.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.