Correlation Between ArcelorMittal and Unilever PLC

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

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

Diversification Opportunities for ArcelorMittal and Unilever PLC

-0.05

Correlation Coefficient

ArcelorMittal  Unilever PLC

Good diversification

The 3 months correlation between ArcelorMittal and Unilever is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal SA ADR 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 ArcelorMittal 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 ArcelorMittal SA ADR 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 ArcelorMittal i.e., ArcelorMittal and Unilever PLC go up and down completely randomly.

Pair Corralation between ArcelorMittal and Unilever PLC

Allowing for the 90-day total investment horizon ArcelorMittal SA ADR is expected to under-perform the Unilever PLC. In addition to that, ArcelorMittal is 2.55 times more volatile than Unilever PLC ADR. It trades about -0.17 of its total potential returns per unit of risk. Unilever PLC ADR is currently generating about -0.18 per unit of volatility. If you would invest  5,878  in Unilever PLC ADR on September 24, 2024 and sell it today you would lose (162.00) from holding Unilever PLC ADR or give up 2.76% of portfolio value over 90 days.

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

ArcelorMittal SA ADR  vs.  Unilever PLC ADR

ArcelorMittal SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ArcelorMittal SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ArcelorMittal is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private 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 ArcelorMittal and Unilever PLC

The main advantage of trading using opposite ArcelorMittal and Unilever PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ArcelorMittal 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 ArcelorMittal SA ADR 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.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.