Correlation Between Estee Lauder and Unilever PLC

Can any of the company-specific risk be diversified away by investing in both Estee Lauder and Unilever PLC 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 Unilever PLC 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 Unilever PLC, you can compare the effects of market volatilities on Estee Lauder and Unilever PLC 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 Unilever PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estee Lauder and Unilever PLC.

Diversification Opportunities for Estee Lauder and Unilever PLC

0.72

Correlation Coefficient

Estee Lauder  Unilever PLC

Poor diversification

The 3 months correlation between Estee and Unilever is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies and Unilever PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC 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 Unilever PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever PLC has no effect on the direction of Estee Lauder i.e., Estee Lauder and Unilever PLC go up and down completely randomly.

Pair Corralation between Estee Lauder and Unilever PLC

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Unilever PLC. In addition to that, Estee Lauder is 1.23 times more volatile than Unilever PLC. It trades about -0.02 of its total potential returns per unit of risk. Unilever PLC is currently generating about -0.02 per unit of volatility. If you would invest  6,413  in Unilever PLC on September 17, 2024 and sell it today you would lose (429.00) from holding Unilever PLC or give up 6.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.92%
Values	Daily Returns

Estee Lauder Companies  vs.  Unilever PLC

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

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 quite persistent essential indicators, Estee Lauder is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Unilever PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Unilever PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Estee Lauder and Unilever PLC

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

The idea behind Estee Lauder Companies and Unilever PLC 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.