Correlation Between Colgate Palmolive and Honest

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

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

Diversification Opportunities for Colgate Palmolive and Honest

0.71

Correlation Coefficient

Colgate Palmolive  Honest

Poor diversification

The 3 months correlation between Colgate and Honest is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Honest Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honest Company 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 Honest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honest Company has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Honest go up and down completely randomly.

Pair Corralation between Colgate Palmolive and Honest

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.34 times more return on investment than Honest. However, Colgate Palmolive is 2.91 times less risky than Honest. It trades about -0.1 of its potential returns per unit of risk. Honest Company is currently generating about -0.06 per unit of risk. If you would invest  9,308  in Colgate Palmolive on November 19, 2024 and sell it today you would lose (704.00) from holding Colgate Palmolive or give up 7.56% of portfolio value over 90 days.

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

Colgate Palmolive  vs.  Honest Company

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.

Honest Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Honest Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Colgate Palmolive and Honest

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

The idea behind Colgate Palmolive and Honest Company 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.