Correlation Between Chevron Corp and Colgate Palmolive

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

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

Diversification Opportunities for Chevron Corp and Colgate Palmolive

0.7

Correlation Coefficient

Chevron Corp  Colgate Palmolive

Poor diversification

The 3 months correlation between Chevron and Colgate is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Chevron Corp and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Chevron Corp 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 Chevron Corp 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 Chevron Corp i.e., Chevron Corp and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Chevron Corp and Colgate Palmolive

Considering the 90-day investment horizon Chevron Corp is expected to generate 1.05 times more return on investment than Colgate Palmolive. However, Chevron Corp is 1.05 times more volatile than Colgate Palmolive. It trades about 0.33 of its potential returns per unit of risk. Colgate Palmolive is currently generating about 0.04 per unit of risk. If you would invest  15,527  in Chevron Corp on January 26, 2024 and sell it today you would earn a total of  830.00  from holding Chevron Corp or generate 5.35% return on investment over 90 days.

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

Chevron Corp  vs.  Colgate Palmolive

Chevron Corp

Risk-Adjusted Performance

13 of 100

Good

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

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.

Pair Trading with Chevron Corp and Colgate Palmolive

The main advantage of trading using opposite Chevron Corp and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chevron Corp 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 Chevron Corp 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.