Correlation Between Packages and Unilever Pakistan

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

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

Diversification Opportunities for Packages and Unilever Pakistan

0.6

Correlation Coefficient

Packages  Unilever Pakistan

Poor diversification

The 3 months correlation between Packages and Unilever is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Packages and Unilever Pakistan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever Pakistan Foods and Packages 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 Packages are associated (or correlated) with Unilever Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever Pakistan Foods has no effect on the direction of Packages i.e., Packages and Unilever Pakistan go up and down completely randomly.

Pair Corralation between Packages and Unilever Pakistan

Assuming the 90 days trading horizon Packages is expected to generate 2.77 times more return on investment than Unilever Pakistan. However, Packages is 2.77 times more volatile than Unilever Pakistan Foods. It trades about 0.18 of its potential returns per unit of risk. Unilever Pakistan Foods is currently generating about 0.25 per unit of risk. If you would invest  46,017  in Packages on September 5, 2024 and sell it today you would earn a total of  15,181  from holding Packages or generate 32.99% return on investment over 90 days.

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

Packages  vs.  Unilever Pakistan Foods

Packages

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Packages are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Packages sustained solid returns over the last few months and may actually be approaching a breakup point.

Unilever Pakistan Foods

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever Pakistan Foods are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Unilever Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Packages and Unilever Pakistan

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

The idea behind Packages and Unilever Pakistan Foods 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.