Correlation Between United Insurance and Unilever Pakistan

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

By analyzing existing cross correlation between United Insurance and Unilever Pakistan Foods, you can compare the effects of market volatilities on United Insurance and Unilever Pakistan 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 United Insurance with a short position of Unilever Pakistan. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Insurance and Unilever Pakistan.

Diversification Opportunities for United Insurance and Unilever Pakistan

0.02

Correlation Coefficient

United Insurance  Unilever Pakistan

Significant diversification

The 3 months correlation between United and Unilever is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding United Insurance and Unilever Pakistan Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever Pakistan Foods and United Insurance 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 United Insurance are associated (or correlated) with Unilever Pakistan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever Pakistan Foods has no effect on the direction of United Insurance i.e., United Insurance and Unilever Pakistan go up and down completely randomly.

Pair Corralation between United Insurance and Unilever Pakistan

Assuming the 90 days trading horizon United Insurance is expected to under-perform the Unilever Pakistan. In addition to that, United Insurance is 1.23 times more volatile than Unilever Pakistan Foods. It trades about -0.02 of its total potential returns per unit of risk. Unilever Pakistan Foods is currently generating about 0.22 per unit of volatility. If you would invest  1,850,919  in Unilever Pakistan Foods on October 26, 2024 and sell it today you would earn a total of  318,081  from holding Unilever Pakistan Foods or generate 17.19% return on investment over 90 days.

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

United Insurance  vs.  Unilever Pakistan Foods

United Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, United Insurance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Unilever Pakistan Foods

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever Pakistan Foods are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Unilever Pakistan sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Insurance and Unilever Pakistan

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

The idea behind United Insurance and Unilever Pakistan Foods 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.