Correlation Between Unilever PLC and Mundial SA

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

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

Diversification Opportunities for Unilever PLC and Mundial SA

-0.17

Correlation Coefficient

Unilever PLC  Mundial SA

Good diversification

The 3 months correlation between Unilever and Mundial is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Mundial SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mundial SA 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 are associated (or correlated) with Mundial SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mundial SA has no effect on the direction of Unilever PLC i.e., Unilever PLC and Mundial SA go up and down completely randomly.

Pair Corralation between Unilever PLC and Mundial SA

Assuming the 90 days trading horizon Unilever PLC is expected to generate 4.15 times less return on investment than Mundial SA. But when comparing it to its historical volatility, Unilever PLC is 1.32 times less risky than Mundial SA. It trades about 0.01 of its potential returns per unit of risk. Mundial SA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,641  in Mundial SA on September 17, 2024 and sell it today you would earn a total of  7.00  from holding Mundial SA or generate 0.43% return on investment over 90 days.

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

Unilever PLC  vs.  Mundial SA

Unilever PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Unilever PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Mundial SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mundial SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Mundial SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Unilever PLC and Mundial SA

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

The idea behind Unilever PLC and Mundial SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.