Correlation Between Colgate Palmolive and Shiseido

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

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

Diversification Opportunities for Colgate Palmolive and Shiseido

0.79

Correlation Coefficient

Colgate Palmolive  Shiseido

Poor diversification

The 3 months correlation between Colgate and Shiseido is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Shiseido Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shiseido 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 Shiseido. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shiseido has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Shiseido go up and down completely randomly.

Pair Corralation between Colgate Palmolive and Shiseido

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.55 times more return on investment than Shiseido. However, Colgate Palmolive is 1.82 times less risky than Shiseido. It trades about -0.13 of its potential returns per unit of risk. Shiseido Company is currently generating about -0.17 per unit of risk. If you would invest  10,404  in Colgate Palmolive on September 17, 2024 and sell it today you would lose (1,039) from holding Colgate Palmolive or give up 9.99% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Colgate Palmolive  vs.  Shiseido Company

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 latest conflicting 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.

Shiseido

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shiseido Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Colgate Palmolive and Shiseido

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

The idea behind Colgate Palmolive and Shiseido 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.