Correlation Between Unilever Pakistan and Hi Tech

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

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

Diversification Opportunities for Unilever Pakistan and Hi Tech

0.89

Correlation Coefficient

Unilever Pakistan  Hi Tech

Very poor diversification

The 3 months correlation between Unilever and HTL is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Unilever Pakistan Foods and Hi Tech Lubricants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hi Tech Lubricants and Unilever Pakistan 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 Pakistan Foods are associated (or correlated) with Hi Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hi Tech Lubricants has no effect on the direction of Unilever Pakistan i.e., Unilever Pakistan and Hi Tech go up and down completely randomly.

Pair Corralation between Unilever Pakistan and Hi Tech

Assuming the 90 days trading horizon Unilever Pakistan is expected to generate 6.16 times less return on investment than Hi Tech. But when comparing it to its historical volatility, Unilever Pakistan Foods is 1.3 times less risky than Hi Tech. It trades about 0.01 of its potential returns per unit of risk. Hi Tech Lubricants is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,412  in Hi Tech Lubricants on September 26, 2024 and sell it today you would earn a total of  2,812  from holding Hi Tech Lubricants or generate 116.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	66.67%
Values	Daily Returns

Unilever Pakistan Foods  vs.  Hi Tech Lubricants

Unilever Pakistan Foods

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever Pakistan Foods are ranked lower than 24 (%) 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.

Hi Tech Lubricants

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hi Tech Lubricants are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Hi Tech reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unilever Pakistan and Hi Tech

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

The idea behind Unilever Pakistan Foods and Hi Tech Lubricants 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.