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

0.68

Correlation Coefficient

Unilever PLC  Unicharm

Poor diversification

The 3 months correlation between Unilever and Unicharm is 0.68. 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 trading horizon Unilever PLC is expected to generate 0.42 times more return on investment than Unicharm. However, Unilever PLC is 2.39 times less risky than Unicharm. It trades about 0.06 of its potential returns per unit of risk. Unicharm is currently generating about -0.02 per unit of risk. If you would invest  4,314  in Unilever PLC on October 5, 2024 and sell it today you would earn a total of  1,086  from holding Unilever PLC or generate 25.17% return on investment over 90 days.

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

Unilever PLC  vs.  Unicharm

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 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

0 of 100

Very Weak

Over the last 90 days Unicharm has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain 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 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.