Here is the graph of monthly returns of Colgate-Palmolive (CL) plotted against Vanguard S&P 500 Index ETF (VOO):
Exhibit 1: Monthly Returns of Colgate-Palmolive and Vanguard S&P 500 Index ETF [June 2019 - August 2022]
(Source: RStudio, ggplot, Data Provided by IEX Cloud)
Results of the linear regression of monthly returns of Colgate-Palmolive against Vanguard S&P 500 Index ETF:
> VOOandCL <- read_excel("/CL_VOO_LM_September_2022.xlsx", sheet = "Sheet1")
> lmCLVOO = lm(CL_Monthly_Return~VOO_Monthly_Return, data = VOOandCL)
> summary(lmCLVOO)
Call:
lm(formula = CL_Monthly_Return ~ VOO_Monthly_Return, data = VOOandCL)
Residuals:
Min 1Q Median 3Q Max
-0.084505 -0.025451 0.002263 0.028820 0.122836
Coefficients:
Estimate Std. Error t value Pr(>|t|)
(Intercept) 0.0002236 0.0067940 0.033 0.97392
VOO_Monthly_Return 0.3471172 0.1226847 2.829 0.00749 **
---
Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Residual standard error: 0.04161 on 37 degrees of freedom
Multiple R-squared: 0.1779, Adjusted R-squared: 0.1557
F-statistic: 8.005 on 1 and 37 DF, p-value: 0.007492
The slope of the regression corresponds to the beta of the stock. In this case, Colgate-Palmolive has a beta of 0.34.
The adjusted R-squared is 0.15. About 15% of Colgate-Palmolive's return is explained by the returns of the S&P 500 index.
Colgate-Palmolive can protect a portfolio against market volatility since it has a beta value substantially less than 1.
