Correlation Between Reckitt Benckiser and Colgate Palmolive

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

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

Diversification Opportunities for Reckitt Benckiser and Colgate Palmolive

-0.67

Correlation Coefficient

Reckitt Benckiser  Colgate Palmolive

Excellent diversification

The 3 months correlation between Reckitt and Colgate is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Reckitt Benckiser Group and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Reckitt Benckiser 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 Reckitt Benckiser Group 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 Reckitt Benckiser i.e., Reckitt Benckiser and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Reckitt Benckiser and Colgate Palmolive

Assuming the 90 days horizon Reckitt Benckiser Group is expected to generate 2.26 times more return on investment than Colgate Palmolive. However, Reckitt Benckiser is 2.26 times more volatile than Colgate Palmolive. It trades about 0.04 of its potential returns per unit of risk. Colgate Palmolive is currently generating about 0.07 per unit of risk. If you would invest  1,049  in Reckitt Benckiser Group on January 25, 2024 and sell it today you would earn a total of  10.00  from holding Reckitt Benckiser Group or generate 0.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Reckitt Benckiser Group  vs.  Colgate Palmolive

Reckitt Benckiser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reckitt Benckiser Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's essential indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Colgate Palmolive

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Colgate Palmolive are ranked lower than 15 (%) 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 Reckitt Benckiser and Colgate Palmolive

The main advantage of trading using opposite Reckitt Benckiser and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reckitt Benckiser 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 Reckitt Benckiser Group 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.