Correlation Between Church Dwight and Reckitt Benckiser

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

By analyzing existing cross correlation between Church Dwight and Reckitt Benckiser Group, you can compare the effects of market volatilities on Church Dwight and Reckitt Benckiser 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 Church Dwight with a short position of Reckitt Benckiser. Check out your portfolio center. Please also check ongoing floating volatility patterns of Church Dwight and Reckitt Benckiser.

Diversification Opportunities for Church Dwight and Reckitt Benckiser

-0.16

Correlation Coefficient

Church Dwight  Reckitt Benckiser

Good diversification

The 3 months correlation between Church and Reckitt is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Church Dwight and Reckitt Benckiser Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reckitt Benckiser and Church Dwight 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 Church Dwight are associated (or correlated) with Reckitt Benckiser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reckitt Benckiser has no effect on the direction of Church Dwight i.e., Church Dwight and Reckitt Benckiser go up and down completely randomly.

Pair Corralation between Church Dwight and Reckitt Benckiser

Considering the 90-day investment horizon Church Dwight is expected to under-perform the Reckitt Benckiser. But the stock apears to be less risky and, when comparing its historical volatility, Church Dwight is 1.17 times less risky than Reckitt Benckiser. The stock trades about -0.22 of its potential returns per unit of risk. The Reckitt Benckiser Group is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  1,239  in Reckitt Benckiser Group on September 27, 2024 and sell it today you would lose (33.00) from holding Reckitt Benckiser Group or give up 2.66% of portfolio value over 90 days.

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

Church Dwight  vs.  Reckitt Benckiser Group

Church Dwight

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Church Dwight are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Reckitt Benckiser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reckitt Benckiser Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Reckitt Benckiser is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Church Dwight and Reckitt Benckiser

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

The idea behind Church Dwight and Reckitt Benckiser Group 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.