Correlation Between Colgate Palmolive and Beauty Health

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

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

Diversification Opportunities for Colgate Palmolive and Beauty Health

-0.61

Correlation Coefficient

Colgate Palmolive  Beauty Health

Excellent diversification

The 3 months correlation between Colgate and Beauty is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Beauty Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beauty Health 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 Beauty Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beauty Health has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Beauty Health go up and down completely randomly.

Pair Corralation between Colgate Palmolive and Beauty Health

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.34 times more return on investment than Beauty Health. However, Colgate Palmolive is 2.91 times less risky than Beauty Health. It trades about 0.04 of its potential returns per unit of risk. Beauty Health Co is currently generating about -0.05 per unit of risk. If you would invest  9,028  in Colgate Palmolive on December 29, 2024 and sell it today you would earn a total of  291.00  from holding Colgate Palmolive or generate 3.22% return on investment over 90 days.

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

Colgate Palmolive  vs.  Beauty Health Co

Colgate Palmolive

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Colgate Palmolive are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Beauty Health

Risk-Adjusted Performance

Very Weak

Over the last 90 days Beauty Health Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Colgate Palmolive and Beauty Health

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

The idea behind Colgate Palmolive and Beauty Health Co 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.