Correlation Between Colgate Palmolive and CHS

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

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

Diversification Opportunities for Colgate Palmolive and CHS

-0.37

Correlation Coefficient

Colgate Palmolive  CHS

Very good diversification

The 3 months correlation between Colgate and CHS is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and CHS Inc CL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHS Inc CL and Colgate Palmolive 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 are associated (or correlated) with CHS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHS Inc CL has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and CHS go up and down completely randomly.

Pair Corralation between Colgate Palmolive and CHS

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to under-perform the CHS. In addition to that, Colgate Palmolive is 3.54 times more volatile than CHS Inc CL. It trades about -0.01 of its total potential returns per unit of risk. CHS Inc CL is currently generating about 0.07 per unit of volatility. If you would invest  2,514  in CHS Inc CL on December 27, 2024 and sell it today you would earn a total of  44.00  from holding CHS Inc CL or generate 1.75% return on investment over 90 days.

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

Colgate Palmolive  vs.  CHS Inc CL

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 quite persistent essential indicators, Colgate Palmolive is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

CHS Inc CL

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CHS Inc CL are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental indicators, CHS is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Colgate Palmolive and CHS

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

The idea behind Colgate Palmolive and CHS Inc CL 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.