Correlation Between COLGATE and CTS

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

By analyzing existing cross correlation between COLGATE PALMOLIVE MEDIUM TERM and CTS Corporation, you can compare the effects of market volatilities on COLGATE and CTS 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 COLGATE with a short position of CTS. Check out your portfolio center. Please also check ongoing floating volatility patterns of COLGATE and CTS.

Diversification Opportunities for COLGATE and CTS

-0.8

Correlation Coefficient

COLGATE  CTS

Pay attention - limited upside

The 3 months correlation between COLGATE and CTS is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding COLGATE PALMOLIVE MEDIUM TERM and CTS Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTS Corporation and COLGATE 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 COLGATE PALMOLIVE MEDIUM TERM are associated (or correlated) with CTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTS Corporation has no effect on the direction of COLGATE i.e., COLGATE and CTS go up and down completely randomly.

Pair Corralation between COLGATE and CTS

Assuming the 90 days trading horizon COLGATE PALMOLIVE MEDIUM TERM is expected to generate 1.2 times more return on investment than CTS. However, COLGATE is 1.2 times more volatile than CTS Corporation. It trades about 0.11 of its potential returns per unit of risk. CTS Corporation is currently generating about -0.1 per unit of risk. If you would invest  8,677  in COLGATE PALMOLIVE MEDIUM TERM on September 26, 2024 and sell it today you would earn a total of  335.00  from holding COLGATE PALMOLIVE MEDIUM TERM or generate 3.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	90.48%
Values	Daily Returns

COLGATE PALMOLIVE MEDIUM TERM  vs.  CTS Corp.

COLGATE PALMOLIVE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COLGATE PALMOLIVE MEDIUM TERM has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, COLGATE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CTS Corporation

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CTS Corporation are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CTS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with COLGATE and CTS

The main advantage of trading using opposite COLGATE and CTS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COLGATE position performs unexpectedly, CTS 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 CTS will offset losses from the drop in CTS's long position.

The idea behind COLGATE PALMOLIVE MEDIUM TERM and CTS Corporation 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.