Correlation Between Unilever PLC and LOreal Co

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

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

Diversification Opportunities for Unilever PLC and LOreal Co

0.71

Correlation Coefficient

Unilever PLC  LOreal Co

Poor diversification

The 3 months correlation between Unilever and LOreal is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and LOreal Co ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOreal Co ADR 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 LOreal Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOreal Co ADR has no effect on the direction of Unilever PLC i.e., Unilever PLC and LOreal Co go up and down completely randomly.

Pair Corralation between Unilever PLC and LOreal Co

Assuming the 90 days horizon Unilever PLC is expected to generate 2.02 times more return on investment than LOreal Co. However, Unilever PLC is 2.02 times more volatile than LOreal Co ADR. It trades about -0.05 of its potential returns per unit of risk. LOreal Co ADR is currently generating about -0.11 per unit of risk. If you would invest  6,191  in Unilever PLC on October 21, 2024 and sell it today you would lose (671.00) from holding Unilever PLC or give up 10.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Unilever PLC  vs.  LOreal Co ADR

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.

LOreal Co ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOreal Co ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Unilever PLC and LOreal Co

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

The idea behind Unilever PLC and LOreal Co ADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.