Correlation Between Colgate Palmolive and Freshpet

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

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

Diversification Opportunities for Colgate Palmolive and Freshpet

0.64

Correlation Coefficient

Colgate Palmolive  Freshpet

Poor diversification

The 3 months correlation between Colgate and Freshpet is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet 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 Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Freshpet go up and down completely randomly.

Pair Corralation between Colgate Palmolive and Freshpet

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.45 times more return on investment than Freshpet. However, Colgate Palmolive is 2.23 times less risky than Freshpet. It trades about 0.39 of its potential returns per unit of risk. Freshpet is currently generating about -0.1 per unit of risk. If you would invest  8,690  in Colgate Palmolive on February 4, 2024 and sell it today you would earn a total of  598.00  from holding Colgate Palmolive or generate 6.88% 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.  Freshpet

Colgate Palmolive

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Colgate Palmolive are ranked lower than 19 (%) 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 June 2024.

Freshpet

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Freshpet unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Colgate Palmolive and Freshpet

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

The idea behind Colgate Palmolive and Freshpet 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 Transaction History module to view history of all your transactions and understand their impact on performance.