Correlation Between Colgate Palmolive and Infusion Brands

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

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

Diversification Opportunities for Colgate Palmolive and Infusion Brands

0.0

Correlation Coefficient

Colgate Palmolive  Infusion Brands

Pay attention - limited upside

The 3 months correlation between Colgate and Infusion is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Colgate Palmolive and Infusion Brands International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Infusion Brands Inte 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 Infusion Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Infusion Brands Inte has no effect on the direction of Colgate Palmolive i.e., Colgate Palmolive and Infusion Brands go up and down completely randomly.

Pair Corralation between Colgate Palmolive and Infusion Brands

Allowing for the 90-day total investment horizon Colgate Palmolive is expected to generate 0.28 times more return on investment than Infusion Brands. However, Colgate Palmolive is 3.61 times less risky than Infusion Brands. It trades about 0.06 of its potential returns per unit of risk. Infusion Brands International is currently generating about -0.06 per unit of risk. If you would invest  7,873  in Colgate Palmolive on January 26, 2024 and sell it today you would earn a total of  1,014  from holding Colgate Palmolive or generate 12.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Colgate Palmolive  vs.  Infusion Brands International

Colgate Palmolive

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Colgate Palmolive are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Colgate Palmolive may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Infusion Brands Inte

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Infusion Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Infusion Brands is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Colgate Palmolive and Infusion Brands

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

The idea behind Colgate Palmolive and Infusion Brands International 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.