Correlation Between Martin Marietta and Colgate Palmolive

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

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

Diversification Opportunities for Martin Marietta and Colgate Palmolive

-0.64

Correlation Coefficient

Martin Marietta  Colgate Palmolive

Excellent diversification

The 3 months correlation between Martin and Colgate is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Martin Marietta Materials and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Martin Marietta 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 Martin Marietta Materials 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 Martin Marietta i.e., Martin Marietta and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Martin Marietta and Colgate Palmolive

Assuming the 90 days trading horizon Martin Marietta Materials is expected to under-perform the Colgate Palmolive. But the stock apears to be less risky and, when comparing its historical volatility, Martin Marietta Materials is 1.13 times less risky than Colgate Palmolive. The stock trades about -0.31 of its potential returns per unit of risk. The Colgate Palmolive is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  190,500  in Colgate Palmolive on September 27, 2024 and sell it today you would lose (6,800) from holding Colgate Palmolive or give up 3.57% of portfolio value over 90 days.

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

Martin Marietta Materials  vs.  Colgate Palmolive

Martin Marietta Materials

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Martin Marietta Materials are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong primary indicators, Martin Marietta is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the 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. 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 Martin Marietta and Colgate Palmolive

The main advantage of trading using opposite Martin Marietta and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Martin Marietta 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 Martin Marietta Materials 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.