Correlation Between Unilever PLC and Herald Investment

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

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

Diversification Opportunities for Unilever PLC and Herald Investment

-0.46

Correlation Coefficient

Unilever PLC  Herald Investment

Very good diversification

The 3 months correlation between Unilever and Herald is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Herald Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Herald Investment Trust 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 Herald Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Herald Investment Trust has no effect on the direction of Unilever PLC i.e., Unilever PLC and Herald Investment go up and down completely randomly.

Pair Corralation between Unilever PLC and Herald Investment

Assuming the 90 days trading horizon Unilever PLC is expected to generate 1.7 times less return on investment than Herald Investment. But when comparing it to its historical volatility, Unilever PLC is 1.28 times less risky than Herald Investment. It trades about 0.03 of its potential returns per unit of risk. Herald Investment Trust is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  225,000  in Herald Investment Trust on October 20, 2024 and sell it today you would earn a total of  15,000  from holding Herald Investment Trust or generate 6.67% 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  vs.  Herald Investment Trust

Unilever PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Unilever PLC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Herald Investment Trust

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Herald Investment Trust are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Herald Investment exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unilever PLC and Herald Investment

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

The idea behind Unilever PLC and Herald Investment Trust 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.