Correlation Between Honest and Unilever PLC

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

By analyzing existing cross correlation between Honest Company and Unilever PLC ADR, you can compare the effects of market volatilities on Honest 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 Honest with a short position of Unilever PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Honest and Unilever PLC.

Diversification Opportunities for Honest and Unilever PLC

0.49

Correlation Coefficient

Honest  Unilever PLC

Very weak diversification

The 3 months correlation between Honest and Unilever is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Honest Company and Unilever PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC ADR and Honest 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 Honest Company 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 ADR has no effect on the direction of Honest i.e., Honest and Unilever PLC go up and down completely randomly.

Pair Corralation between Honest and Unilever PLC

Given the investment horizon of 90 days Honest Company is expected to under-perform the Unilever PLC. In addition to that, Honest is 2.86 times more volatile than Unilever PLC ADR. It trades about -0.06 of its total potential returns per unit of risk. Unilever PLC ADR is currently generating about -0.07 per unit of volatility. If you would invest  5,786  in Unilever PLC ADR on November 19, 2024 and sell it today you would lose (297.00) from holding Unilever PLC ADR or give up 5.13% of portfolio value over 90 days.

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

Honest Company  vs.  Unilever PLC ADR

Honest Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Honest Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Unilever PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Unilever PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Unilever PLC is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Honest and Unilever PLC

The main advantage of trading using opposite Honest and Unilever PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Honest 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 Honest Company and Unilever PLC ADR 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.