Correlation Between Unilever PLC and Polar Capital

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

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

Diversification Opportunities for Unilever PLC and Polar Capital

-0.63

Correlation Coefficient

Unilever PLC  Polar Capital

Excellent diversification

The 3 months correlation between Unilever and Polar is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Polar Capital Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Polar Capital Technology 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 Polar Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Polar Capital Technology has no effect on the direction of Unilever PLC i.e., Unilever PLC and Polar Capital go up and down completely randomly.

Pair Corralation between Unilever PLC and Polar Capital

Assuming the 90 days trading horizon Unilever PLC is expected to generate 37.16 times less return on investment than Polar Capital. But when comparing it to its historical volatility, Unilever PLC is 1.19 times less risky than Polar Capital. It trades about 0.01 of its potential returns per unit of risk. Polar Capital Technology is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  34,300  in Polar Capital Technology on October 20, 2024 and sell it today you would earn a total of  2,900  from holding Polar Capital Technology or generate 8.45% return on investment over 90 days.

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

Unilever PLC  vs.  Polar Capital Technology

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.

Polar Capital Technology

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Polar Capital Technology are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Polar Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unilever PLC and Polar Capital

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

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