Correlation Between Colgate Palmolive and Essity AB

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

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

Diversification Opportunities for Colgate Palmolive and Essity AB

0.77

Correlation Coefficient

Colgate Palmolive  Essity AB

Poor diversification

The 3 months correlation between Colgate and Essity is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Essity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essity AB 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 Essity AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essity AB has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Essity AB go up and down completely randomly.

Pair Corralation between Colgate Palmolive and Essity AB

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.49 times more return on investment than Essity AB. However, Colgate Palmolive is 2.04 times less risky than Essity AB. It trades about -0.19 of its potential returns per unit of risk. Essity AB is currently generating about -0.1 per unit of risk. If you would invest  10,023  in Colgate Palmolive on October 12, 2024 and sell it today you would lose (1,277) from holding Colgate Palmolive or give up 12.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

Colgate Palmolive  vs.  Essity AB

Colgate Palmolive

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Colgate Palmolive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Essity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essity AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Colgate Palmolive and Essity AB

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

The idea behind Colgate Palmolive and Essity AB 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.