Correlation Between Shiseido Company and Unilever PLC

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

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

Diversification Opportunities for Shiseido Company and Unilever PLC

0.3

Correlation Coefficient

Shiseido Company  Unilever PLC

Weak diversification

The 3 months correlation between Shiseido and Unilever is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Shiseido Company and Unilever PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC and Shiseido Company 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 Shiseido 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 has no effect on the direction of Shiseido Company i.e., Shiseido Company and Unilever PLC go up and down completely randomly.

Pair Corralation between Shiseido Company and Unilever PLC

Assuming the 90 days horizon Shiseido Company is expected to under-perform the Unilever PLC. But the pink sheet apears to be less risky and, when comparing its historical volatility, Shiseido Company is 1.24 times less risky than Unilever PLC. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Unilever PLC is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  6,348  in Unilever PLC on December 5, 2024 and sell it today you would lose (748.00) from holding Unilever PLC or give up 11.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	92.62%
Values	Daily Returns

Shiseido Company  vs.  Unilever PLC

Shiseido Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Shiseido Company are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Shiseido Company is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the 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 nearly stable basic indicators, Unilever PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Shiseido Company and Unilever PLC

The main advantage of trading using opposite Shiseido Company and Unilever PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shiseido Company 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 Shiseido Company 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.