Correlation Between Colgate Palmolive and Unicharm

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

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

Diversification Opportunities for Colgate Palmolive and Unicharm

0.27

Correlation Coefficient

Colgate Palmolive  Unicharm

Modest diversification

The 3 months correlation between Colgate and Unicharm is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Unicharm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unicharm 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 Unicharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unicharm has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Unicharm go up and down completely randomly.

Pair Corralation between Colgate Palmolive and Unicharm

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 4.37 times less return on investment than Unicharm. But when comparing it to its historical volatility, Colgate Palmolive is 3.51 times less risky than Unicharm. It trades about 0.04 of its potential returns per unit of risk. Unicharm is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  735.00  in Unicharm on December 29, 2024 and sell it today you would earn a total of  61.00  from holding Unicharm or generate 8.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Colgate Palmolive  vs.  Unicharm

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.

Unicharm

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Unicharm are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical indicators, Unicharm reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Colgate Palmolive and Unicharm

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

The idea behind Colgate Palmolive and Unicharm 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.