Correlation Between Unilever PLC and Colgate Palmolive

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Can any of the company-specific risk be diversified away by investing in both Unilever PLC 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 Unilever PLC and Colgate Palmolive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Unilever PLC and Colgate Palmolive, you can compare the effects of market volatilities on Unilever PLC 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 Unilever PLC with a short position of Colgate Palmolive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unilever PLC and Colgate Palmolive.

Diversification Opportunities for Unilever PLC and Colgate Palmolive

0.43
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Unilever and Colgate is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Colgate Palmolive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Colgate Palmolive and Unilever PLC 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 Unilever PLC 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 Unilever PLC i.e., Unilever PLC and Colgate Palmolive go up and down completely randomly.

Pair Corralation between Unilever PLC and Colgate Palmolive

Assuming the 90 days trading horizon Unilever PLC is expected to generate 1.09 times more return on investment than Colgate Palmolive. However, Unilever PLC is 1.09 times more volatile than Colgate Palmolive. It trades about 0.08 of its potential returns per unit of risk. Colgate Palmolive is currently generating about 0.08 per unit of risk. If you would invest  97,530  in Unilever PLC on September 5, 2024 and sell it today you would earn a total of  14,470  from holding Unilever PLC or generate 14.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Unilever PLC  vs.  Colgate Palmolive

 Performance 
       Timeline  
Unilever PLC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Unilever PLC 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 basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.
Colgate Palmolive 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Colgate Palmolive has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Unilever PLC and Colgate Palmolive Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Unilever PLC and Colgate Palmolive

The main advantage of trading using opposite Unilever PLC and Colgate Palmolive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unilever PLC 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 Unilever PLC 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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