Correlation Between Unilever PLC and Colgate Palmolive

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

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

Diversification Opportunities for Unilever PLC and Colgate Palmolive

0.81

Correlation Coefficient

Unilever PLC  Colgate Palmolive

Very poor diversification

The 3 months correlation between Unilever and Colgate is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Unilever PLC 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 Unilever PLC 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 Unilever PLC i.e., Unilever PLC and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Unilever PLC and Colgate Palmolive

Assuming the 90 days horizon Unilever PLC is expected to generate 2.45 times more return on investment than Colgate Palmolive. However, Unilever PLC is 2.45 times more volatile than Colgate Palmolive. It trades about -0.02 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.14 per unit of risk. If you would invest  6,413  in Unilever PLC on September 16, 2024 and sell it today you would lose (429.00) from holding Unilever PLC or give up 6.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Unilever PLC  vs.  Colgate Palmolive

Unilever PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Unilever PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the 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 latest conflicting 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 Unilever PLC and Colgate Palmolive

The main advantage of trading using opposite Unilever PLC and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unilever PLC 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 Unilever PLC 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.