Correlation Between Estée Lauder and Unilever Plc

Can any of the company-specific risk be diversified away by investing in both Estée 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 Estée 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 The Este Lauder and Unilever Plc, you can compare the effects of market volatilities on Estée 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 Estée Lauder with a short position of Unilever Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Estée Lauder and Unilever Plc.

Diversification Opportunities for Estée Lauder and Unilever Plc

0.04

Correlation Coefficient

Estée Lauder  Unilever Plc

Significant diversification

The 3 months correlation between Estée and Unilever is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding The Este Lauder and Unilever Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever Plc and Estée 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 The Este Lauder 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 Estée Lauder i.e., Estée Lauder and Unilever Plc go up and down completely randomly.

Pair Corralation between Estée Lauder and Unilever Plc

Assuming the 90 days trading horizon The Este Lauder is expected to under-perform the Unilever Plc. In addition to that, Estée Lauder is 2.24 times more volatile than Unilever Plc. It trades about -0.05 of its total potential returns per unit of risk. Unilever Plc is currently generating about -0.01 per unit of volatility. If you would invest  5,465  in Unilever Plc on December 25, 2024 and sell it today you would lose (63.00) from holding Unilever Plc or give up 1.15% of portfolio value over 90 days.

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

The Este Lauder  vs.  Unilever Plc

Estée Lauder

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Este Lauder has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Unilever Plc

Risk-Adjusted Performance

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 rather sound fundamental drivers, Unilever Plc is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Estée Lauder and Unilever Plc

The main advantage of trading using opposite Estée Lauder and Unilever Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estée 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 The Este Lauder 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.