Correlation Between Unilever PLC and ELF Beauty

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

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

Diversification Opportunities for Unilever PLC and ELF Beauty

-0.54

Correlation Coefficient

Unilever PLC  ELF Beauty

Excellent diversification

The 3 months correlation between Unilever and ELF is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC ADR and ELF Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELF Beauty and Unilever 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 Unilever PLC ADR are associated (or correlated) with ELF Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELF Beauty has no effect on the direction of Unilever PLC i.e., Unilever PLC and ELF Beauty go up and down completely randomly.

Pair Corralation between Unilever PLC and ELF Beauty

Allowing for the 90-day total investment horizon Unilever PLC ADR is expected to generate 0.29 times more return on investment than ELF Beauty. However, Unilever PLC ADR is 3.43 times less risky than ELF Beauty. It trades about 0.04 of its potential returns per unit of risk. ELF Beauty is currently generating about -0.22 per unit of risk. If you would invest  5,698  in Unilever PLC ADR on December 27, 2024 and sell it today you would earn a total of  169.00  from holding Unilever PLC ADR or generate 2.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Unilever PLC ADR  vs.  ELF Beauty

Unilever PLC ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever PLC ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Unilever PLC is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

ELF Beauty

Risk-Adjusted Performance

Very Weak

Over the last 90 days ELF Beauty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Unilever PLC and ELF Beauty

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

The idea behind Unilever PLC ADR and ELF Beauty 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.