Correlation Between Kroger and Colgate Palmolive

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

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

Diversification Opportunities for Kroger and Colgate Palmolive

-0.66

Correlation Coefficient

Kroger  Colgate Palmolive

Excellent diversification

The 3 months correlation between Kroger and Colgate is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Kroger Company and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Kroger 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 Kroger Company are associated (or correlated) with Colgate Palmolive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Colgate Palmolive has no effect on the direction of Kroger i.e., Kroger and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Kroger and Colgate Palmolive

Allowing for the 90-day total investment horizon Kroger Company is expected to generate 2.17 times more return on investment than Colgate Palmolive. However, Kroger is 2.17 times more volatile than Colgate Palmolive. It trades about 0.1 of its potential returns per unit of risk. Colgate Palmolive is currently generating about -0.26 per unit of risk. If you would invest  6,050  in Kroger Company on September 28, 2024 and sell it today you would earn a total of  214.00  from holding Kroger Company or generate 3.54% return on investment over 90 days.

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

Kroger Company  vs.  Colgate Palmolive

Kroger Company

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Kroger Company are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Kroger may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 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.

Pair Trading with Kroger and Colgate Palmolive

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

The idea behind Kroger Company and Colgate Palmolive 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.