Correlation Between Unilever PLC and LOral SA

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

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

Diversification Opportunities for Unilever PLC and LOral SA

-0.35

Correlation Coefficient

Unilever PLC  LOral SA

Very good diversification

The 3 months correlation between Unilever and LOral is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOral SA 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 LOral SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOral SA has no effect on the direction of Unilever PLC i.e., Unilever PLC and LOral SA go up and down completely randomly.

Pair Corralation between Unilever PLC and LOral SA

Assuming the 90 days trading horizon Unilever PLC is expected to generate 1.06 times less return on investment than LOral SA. But when comparing it to its historical volatility, Unilever PLC is 1.06 times less risky than LOral SA. It trades about 0.04 of its potential returns per unit of risk. LOral SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  673,845  in LOral SA on September 27, 2024 and sell it today you would earn a total of  150,822  from holding LOral SA or generate 22.38% return on investment over 90 days.

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

Unilever PLC  vs.  LOral SA

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. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

LOral SA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LOral SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, LOral SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Unilever PLC and LOral SA

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

The idea behind Unilever PLC and LOral SA 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..