Correlation Between Unilever PLC and Iridium Communications

Can any of the company-specific risk be diversified away by investing in both Unilever PLC and Iridium Communications 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 Iridium Communications 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 Iridium Communications, you can compare the effects of market volatilities on Unilever PLC and Iridium Communications 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 Iridium Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unilever PLC and Iridium Communications.

Diversification Opportunities for Unilever PLC and Iridium Communications

0.41

Correlation Coefficient

Unilever PLC  Iridium Communications

Very weak diversification

The 3 months correlation between Unilever and Iridium is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC ADR and Iridium Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iridium Communications 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 Iridium Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iridium Communications has no effect on the direction of Unilever PLC i.e., Unilever PLC and Iridium Communications go up and down completely randomly.

Pair Corralation between Unilever PLC and Iridium Communications

Allowing for the 90-day total investment horizon Unilever PLC ADR is expected to generate 0.46 times more return on investment than Iridium Communications. However, Unilever PLC ADR is 2.2 times less risky than Iridium Communications. It trades about -0.3 of its potential returns per unit of risk. Iridium Communications is currently generating about -0.14 per unit of risk. If you would invest  5,991  in Unilever PLC ADR on October 1, 2024 and sell it today you would lose (245.00) from holding Unilever PLC ADR or give up 4.09% of portfolio value over 90 days.

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

Unilever PLC ADR  vs.  Iridium Communications

Unilever PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Iridium Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iridium Communications has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Iridium Communications is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Unilever PLC and Iridium Communications

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

The idea behind Unilever PLC ADR and Iridium Communications 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.