Correlation Between SYSTEMAIR and Colgate Palmolive

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

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

Diversification Opportunities for SYSTEMAIR and Colgate Palmolive

0.39

Correlation Coefficient

SYSTEMAIR  Colgate Palmolive

Weak diversification

The 3 months correlation between SYSTEMAIR and Colgate is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding SYSTEMAIR AB and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and SYSTEMAIR 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 SYSTEMAIR AB 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 SYSTEMAIR i.e., SYSTEMAIR and Colgate Palmolive go up and down completely randomly.

Pair Corralation between SYSTEMAIR and Colgate Palmolive

Assuming the 90 days trading horizon SYSTEMAIR AB is expected to generate 1.14 times more return on investment than Colgate Palmolive. However, SYSTEMAIR is 1.14 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 -0.04 per unit of risk. If you would invest  768.00  in SYSTEMAIR AB on December 22, 2024 and sell it today you would lose (18.00) from holding SYSTEMAIR AB or give up 2.34% of portfolio value over 90 days.

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

SYSTEMAIR AB  vs.  Colgate Palmolive

SYSTEMAIR AB

Risk-Adjusted Performance

Very Weak

Over the last 90 days SYSTEMAIR AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SYSTEMAIR 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

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 SYSTEMAIR and Colgate Palmolive

The main advantage of trading using opposite SYSTEMAIR and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SYSTEMAIR 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 SYSTEMAIR AB 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.