Correlation Between Unilever PLC and Public Service

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

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

Diversification Opportunities for Unilever PLC and Public Service

0.4

Correlation Coefficient

Unilever PLC  Public Service

Very weak diversification

The 3 months correlation between Unilever and Public is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Public Service Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Public Service Enterprise 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 Public Service. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Public Service Enterprise has no effect on the direction of Unilever PLC i.e., Unilever PLC and Public Service go up and down completely randomly.

Pair Corralation between Unilever PLC and Public Service

Assuming the 90 days trading horizon Unilever PLC is expected to under-perform the Public Service. But the stock apears to be less risky and, when comparing its historical volatility, Unilever PLC is 1.63 times less risky than Public Service. The stock trades about -0.11 of its potential returns per unit of risk. The Public Service Enterprise is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  8,742  in Public Service Enterprise on September 25, 2024 and sell it today you would lose (236.00) from holding Public Service Enterprise or give up 2.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Unilever PLC  vs.  Public Service Enterprise

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 comparatively stable basic indicators, Unilever PLC is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Public Service Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Unilever PLC and Public Service

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

The idea behind Unilever PLC and Public Service Enterprise 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.