Correlation Between Shell PLC and Unit

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

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

Diversification Opportunities for Shell PLC and Unit

0.31

Correlation Coefficient

Shell PLC  Unit

Weak diversification

The 3 months correlation between Shell and Unit is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC and Unit Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unit and Shell PLC 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 Shell PLC are associated (or correlated) with Unit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unit has no effect on the direction of Shell PLC i.e., Shell PLC and Unit go up and down completely randomly.

Pair Corralation between Shell PLC and Unit

Assuming the 90 days horizon Shell PLC is expected to generate 0.16 times more return on investment than Unit. However, Shell PLC is 6.21 times less risky than Unit. It trades about 0.1 of its potential returns per unit of risk. Unit Corporation is currently generating about -0.01 per unit of risk. If you would invest  3,067  in Shell PLC on December 20, 2024 and sell it today you would earn a total of  418.00  from holding Shell PLC or generate 13.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	74.58%
Values	Daily Returns

Shell PLC  vs.  Unit Corp.

Shell PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Shell PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Unit

Risk-Adjusted Performance

Very Weak

Over the last 90 days Unit Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Shell PLC and Unit

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

The idea behind Shell PLC and Unit Corporation 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.