Correlation Between Colgate Palmolive and Estee Lauder

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

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

Diversification Opportunities for Colgate Palmolive and Estee Lauder

0.77

Correlation Coefficient

Colgate Palmolive  Estee Lauder

Poor diversification

The 3 months correlation between Colgate and Estee is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Estee Lauder Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Estee Lauder Companies 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 Estee Lauder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Estee Lauder Companies has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Estee Lauder go up and down completely randomly.

Pair Corralation between Colgate Palmolive and Estee Lauder

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 23.21 times less return on investment than Estee Lauder. But when comparing it to its historical volatility, Colgate Palmolive is 3.64 times less risky than Estee Lauder. It trades about 0.02 of its potential returns per unit of risk. Estee Lauder Companies is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  13,917  in Estee Lauder Companies on January 24, 2024 and sell it today you would earn a total of  825.00  from holding Estee Lauder Companies or generate 5.93% return on investment over 90 days.

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

Colgate Palmolive  vs.  Estee Lauder Companies

Colgate Palmolive

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Colgate Palmolive are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting essential indicators, Colgate Palmolive may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Estee Lauder Companies

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Estee Lauder Companies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile essential indicators, Estee Lauder disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Colgate Palmolive and Estee Lauder

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

The idea behind Colgate Palmolive and Estee Lauder Companies 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.