Correlation Between Microsoft and Colgate Palmolive

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

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

Diversification Opportunities for Microsoft and Colgate Palmolive

0.57

Correlation Coefficient

Microsoft  Colgate Palmolive

Very weak diversification

The 3 months correlation between Microsoft and Colgate is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Microsoft and Colgate Palmolive

Given the investment horizon of 90 days Microsoft is expected to under-perform the Colgate Palmolive. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 2.4 times less risky than Colgate Palmolive. The stock trades about -0.25 of its potential returns per unit of risk. The Colgate Palmolive is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  7,253  in Colgate Palmolive on December 5, 2024 and sell it today you would earn a total of  593.00  from holding Colgate Palmolive or generate 8.18% return on investment over 90 days.

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

Microsoft  vs.  Colgate Palmolive

Microsoft

Risk-Adjusted Performance

Very Weak

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

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 somewhat strong essential indicators, Colgate Palmolive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Microsoft and Colgate Palmolive

The main advantage of trading using opposite Microsoft and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.