Correlation Between CHURCH and Unilever PLC

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

By analyzing existing cross correlation between CHURCH DWIGHT INC and Unilever PLC ADR, you can compare the effects of market volatilities on CHURCH and Unilever PLC 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 CHURCH with a short position of Unilever PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of CHURCH and Unilever PLC.

Diversification Opportunities for CHURCH and Unilever PLC

0.75

Correlation Coefficient

CHURCH  Unilever PLC

Poor diversification

The 3 months correlation between CHURCH and Unilever is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding CHURCH DWIGHT INC and Unilever PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC ADR and CHURCH 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 CHURCH DWIGHT INC are associated (or correlated) with Unilever PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever PLC ADR has no effect on the direction of CHURCH i.e., CHURCH and Unilever PLC go up and down completely randomly.

Pair Corralation between CHURCH and Unilever PLC

Assuming the 90 days trading horizon CHURCH is expected to generate 5.58 times less return on investment than Unilever PLC. But when comparing it to its historical volatility, CHURCH DWIGHT INC is 2.12 times less risky than Unilever PLC. It trades about 0.02 of its potential returns per unit of risk. Unilever PLC ADR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,709  in Unilever PLC ADR on September 24, 2024 and sell it today you would earn a total of  1,007  from holding Unilever PLC ADR or generate 21.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	86.32%
Values	Daily Returns

CHURCH DWIGHT INC  vs.  Unilever PLC ADR

CHURCH DWIGHT INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHURCH DWIGHT INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CHURCH is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Unilever PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with CHURCH and Unilever PLC

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

The idea behind CHURCH DWIGHT INC and Unilever PLC 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.