Correlation Between Unilever PLC and Globalfoundries

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

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

Diversification Opportunities for Unilever PLC and Globalfoundries

-0.64

Correlation Coefficient

Unilever PLC  Globalfoundries

Excellent diversification

The 3 months correlation between Unilever and Globalfoundries is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC ADR and Globalfoundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Globalfoundries 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 ADR are associated (or correlated) with Globalfoundries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Globalfoundries has no effect on the direction of Unilever PLC i.e., Unilever PLC and Globalfoundries go up and down completely randomly.

Pair Corralation between Unilever PLC and Globalfoundries

Allowing for the 90-day total investment horizon Unilever PLC ADR is expected to under-perform the Globalfoundries. But the stock apears to be less risky and, when comparing its historical volatility, Unilever PLC ADR is 3.32 times less risky than Globalfoundries. The stock trades about -0.16 of its potential returns per unit of risk. The Globalfoundries is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,941  in Globalfoundries on September 20, 2024 and sell it today you would earn a total of  445.00  from holding Globalfoundries or generate 11.29% return on investment over 90 days.

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

Unilever PLC ADR  vs.  Globalfoundries

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.

Globalfoundries

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Globalfoundries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Globalfoundries unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unilever PLC and Globalfoundries

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

The idea behind Unilever PLC ADR and Globalfoundries 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.