Correlation Between Unilever PLC and Supermarket Income

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

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

Diversification Opportunities for Unilever PLC and Supermarket Income

0.82

Correlation Coefficient

Unilever PLC  Supermarket Income

Very poor diversification

The 3 months correlation between Unilever and Supermarket is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Supermarket Income REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Supermarket Income REIT 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 Supermarket Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Supermarket Income REIT has no effect on the direction of Unilever PLC i.e., Unilever PLC and Supermarket Income go up and down completely randomly.

Pair Corralation between Unilever PLC and Supermarket Income

Assuming the 90 days trading horizon Unilever PLC is expected to generate 0.89 times more return on investment than Supermarket Income. However, Unilever PLC is 1.12 times less risky than Supermarket Income. It trades about -0.04 of its potential returns per unit of risk. Supermarket Income REIT is currently generating about -0.04 per unit of risk. If you would invest  472,113  in Unilever PLC on October 22, 2024 and sell it today you would lose (13,413) from holding Unilever PLC or give up 2.84% of portfolio value over 90 days.

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

Unilever PLC  vs.  Supermarket Income REIT

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Supermarket Income REIT

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Unilever PLC and Supermarket Income

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

The idea behind Unilever PLC and Supermarket Income REIT 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.