Correlation Between Natura Co and Unilever PLC

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

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

Diversification Opportunities for Natura Co and Unilever PLC

0.17

Correlation Coefficient

Natura Co  Unilever PLC

Average diversification

The 3 months correlation between Natura and Unilever is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Natura Co Holding and Unilever PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC and Natura Co 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 Natura Co Holding 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 Natura Co i.e., Natura Co and Unilever PLC go up and down completely randomly.

Pair Corralation between Natura Co and Unilever PLC

Assuming the 90 days trading horizon Natura Co Holding is expected to generate 1.64 times more return on investment than Unilever PLC. However, Natura Co is 1.64 times more volatile than Unilever PLC. It trades about -0.04 of its potential returns per unit of risk. Unilever PLC is currently generating about -0.08 per unit of risk. If you would invest  1,400  in Natura Co Holding on December 2, 2024 and sell it today you would lose (107.00) from holding Natura Co Holding or give up 7.64% of portfolio value over 90 days.

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

Natura Co Holding  vs.  Unilever PLC

Natura Co Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days Natura Co Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Natura Co is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Natura Co and Unilever PLC

The main advantage of trading using opposite Natura Co and Unilever PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natura Co 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 Natura Co Holding 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.