Correlation Between Roku and Colgate Palmolive

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

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

Diversification Opportunities for Roku and Colgate Palmolive

-0.77

Correlation Coefficient

Roku  Colgate Palmolive

Pay attention - limited upside

The 3 months correlation between Roku and Colgate is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Roku Inc and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Roku 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 Roku Inc 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 Roku i.e., Roku and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Roku and Colgate Palmolive

Given the investment horizon of 90 days Roku Inc is expected to under-perform the Colgate Palmolive. In addition to that, Roku is 2.73 times more volatile than Colgate Palmolive. It trades about -0.23 of its total potential returns per unit of risk. Colgate Palmolive is currently generating about 0.02 per unit of volatility. If you would invest  8,813  in Colgate Palmolive on January 24, 2024 and sell it today you would earn a total of  20.00  from holding Colgate Palmolive or generate 0.23% return on investment over 90 days.

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

Roku Inc  vs.  Colgate Palmolive

Roku Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roku Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward-looking signals remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

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.

Pair Trading with Roku and Colgate Palmolive

The main advantage of trading using opposite Roku and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Roku 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 Roku Inc 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.