Correlation Between Unilever PLC and Essity AB

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

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

Diversification Opportunities for Unilever PLC and Essity AB

0.6

Correlation Coefficient

Unilever PLC  Essity AB

Poor diversification

The 3 months correlation between Unilever and Essity is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Essity AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essity AB 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 Essity AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essity AB has no effect on the direction of Unilever PLC i.e., Unilever PLC and Essity AB go up and down completely randomly.

Pair Corralation between Unilever PLC and Essity AB

Assuming the 90 days horizon Unilever PLC is expected to generate 1.89 times more return on investment than Essity AB. However, Unilever PLC is 1.89 times more volatile than Essity AB. It trades about -0.05 of its potential returns per unit of risk. Essity AB is currently generating about -0.2 per unit of risk. If you would invest  6,248  in Unilever PLC on October 27, 2024 and sell it today you would lose (630.00) from holding Unilever PLC or give up 10.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.65%
Values	Daily Returns

Unilever PLC  vs.  Essity AB

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. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Essity AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Essity AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Unilever PLC and Essity AB

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

The idea behind Unilever PLC and Essity AB 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.