Correlation Between Bunge and Colgate Palmolive

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

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

Diversification Opportunities for Bunge and Colgate Palmolive

0.78

Correlation Coefficient

Bunge  Colgate Palmolive

Poor diversification

The 3 months correlation between Bunge and Colgate is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Bunge Limited and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Bunge 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 Bunge Limited 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 Bunge i.e., Bunge and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Bunge and Colgate Palmolive

Allowing for the 90-day total investment horizon Bunge Limited is expected to under-perform the Colgate Palmolive. In addition to that, Bunge is 1.25 times more volatile than Colgate Palmolive. It trades about -0.17 of its total potential returns per unit of risk. Colgate Palmolive is currently generating about -0.08 per unit of volatility. If you would invest  9,656  in Colgate Palmolive on December 1, 2024 and sell it today you would lose (636.00) from holding Colgate Palmolive or give up 6.59% of portfolio value over 90 days.

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

Bunge Limited  vs.  Colgate Palmolive

Bunge Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bunge Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company 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 latest weak 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 Bunge and Colgate Palmolive

The main advantage of trading using opposite Bunge and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bunge 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 Bunge Limited 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.