Correlation Between KMBB34 and Unilever PLC

Can any of the company-specific risk be diversified away by investing in both KMBB34 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 KMBB34 and Unilever PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KMBB34 and Unilever PLC, you can compare the effects of market volatilities on KMBB34 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 KMBB34 with a short position of Unilever PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of KMBB34 and Unilever PLC.

Diversification Opportunities for KMBB34 and Unilever PLC

0.39

Correlation Coefficient

KMBB34  Unilever PLC

Weak diversification

The 3 months correlation between KMBB34 and Unilever is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding KMBB34 and Unilever PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC and KMBB34 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 KMBB34 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 KMBB34 i.e., KMBB34 and Unilever PLC go up and down completely randomly.

Pair Corralation between KMBB34 and Unilever PLC

Assuming the 90 days trading horizon KMBB34 is expected to generate 1.51 times less return on investment than Unilever PLC. But when comparing it to its historical volatility, KMBB34 is 1.09 times less risky than Unilever PLC. It trades about 0.04 of its potential returns per unit of risk. Unilever PLC is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  25,344  in Unilever PLC on September 23, 2024 and sell it today you would earn a total of  9,446  from holding Unilever PLC or generate 37.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.4%
Values	Daily Returns

KMBB34  vs.  Unilever PLC

KMBB34

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KMBB34 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, KMBB34 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 somewhat strong technical and fundamental indicators, Unilever PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with KMBB34 and Unilever PLC

The main advantage of trading using opposite KMBB34 and Unilever PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KMBB34 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 KMBB34 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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.