Correlation Between Unilever PLC and Unicharm

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

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

Diversification Opportunities for Unilever PLC and Unicharm

0.07

Correlation Coefficient

Unilever PLC  Unicharm

Significant diversification

The 3 months correlation between Unilever and Unicharm is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Unicharm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unicharm 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 Unicharm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unicharm has no effect on the direction of Unilever PLC i.e., Unilever PLC and Unicharm go up and down completely randomly.

Pair Corralation between Unilever PLC and Unicharm

Assuming the 90 days horizon Unilever PLC is expected to generate 2.54 times less return on investment than Unicharm. But when comparing it to its historical volatility, Unilever PLC is 1.85 times less risky than Unicharm. It trades about 0.03 of its potential returns per unit of risk. Unicharm is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  735.00  in Unicharm on December 28, 2024 and sell it today you would earn a total of  39.00  from holding Unicharm or generate 5.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Unilever PLC  vs.  Unicharm

Unilever PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Unilever PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Unicharm

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Unicharm are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting technical indicators, Unicharm reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unilever PLC and Unicharm

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

The idea behind Unilever PLC and Unicharm 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.