Correlation Between Estee Lauder and Church Dwight

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

By analyzing existing cross correlation between Estee Lauder Companies and Church Dwight, you can compare the effects of market volatilities on Estee Lauder and Church Dwight 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 Estee Lauder with a short position of Church Dwight. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and Church Dwight.

Diversification Opportunities for Estee Lauder and Church Dwight

0.5

Correlation Coefficient

Estee Lauder  Church Dwight

Very weak diversification

The 3 months correlation between Estee and Church is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Church Dwight in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Church Dwight and Estee Lauder 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 Estee Lauder Companies are associated (or correlated) with Church Dwight. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Church Dwight has no effect on the direction of Estee Lauder i.e., Estee Lauder and Church Dwight go up and down completely randomly.

Pair Corralation between Estee Lauder and Church Dwight

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Church Dwight. In addition to that, Estee Lauder is 2.97 times more volatile than Church Dwight. It trades about -0.1 of its total potential returns per unit of risk. Church Dwight is currently generating about -0.07 per unit of volatility. If you would invest  10,614  in Church Dwight on February 1, 2025 and sell it today you would lose (680.00) from holding Church Dwight or give up 6.41% of portfolio value over 90 days.

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

Estee Lauder Companies  vs.  Church Dwight

Estee Lauder Companies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in June 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Church Dwight

Risk-Adjusted Performance

Very Weak

Over the last 90 days Church Dwight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Estee Lauder and Church Dwight

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

The idea behind Estee Lauder Companies and Church Dwight 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .