Correlation Between Unilever PLC and Shell PLC

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

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

Diversification Opportunities for Unilever PLC and Shell PLC

-0.59

Correlation Coefficient

Unilever PLC  Shell PLC

Excellent diversification

The 3 months correlation between Unilever and Shell is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of Unilever PLC i.e., Unilever PLC and Shell PLC go up and down completely randomly.

Pair Corralation between Unilever PLC and Shell PLC

Assuming the 90 days trading horizon Unilever PLC is expected to under-perform the Shell PLC. But the stock apears to be less risky and, when comparing its historical volatility, Unilever PLC is 1.33 times less risky than Shell PLC. The stock trades about -0.05 of its potential returns per unit of risk. The Shell PLC is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,998  in Shell PLC on September 12, 2024 and sell it today you would earn a total of  55.00  from holding Shell PLC or generate 1.83% 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.  Shell PLC

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.

Shell PLC

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Shell PLC is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Unilever PLC and Shell PLC

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

The idea behind Unilever PLC and Shell PLC 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 Stocks Directory module to find actively traded stocks across global markets.