Correlation Between Unilever PLC and Vodafone Group

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

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

Diversification Opportunities for Unilever PLC and Vodafone Group

0.79

Correlation Coefficient

Unilever PLC  Vodafone Group

Poor diversification

The 3 months correlation between Unilever and Vodafone is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Vodafone Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodafone Group PLC 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 Vodafone Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodafone Group PLC has no effect on the direction of Unilever PLC i.e., Unilever PLC and Vodafone Group go up and down completely randomly.

Pair Corralation between Unilever PLC and Vodafone Group

Assuming the 90 days trading horizon Unilever PLC is expected to generate 0.57 times more return on investment than Vodafone Group. However, Unilever PLC is 1.75 times less risky than Vodafone Group. It trades about -0.06 of its potential returns per unit of risk. Vodafone Group PLC is currently generating about -0.11 per unit of risk. If you would invest  481,438  in Unilever PLC on September 19, 2024 and sell it today you would lose (16,238) from holding Unilever PLC or give up 3.37% of portfolio value over 90 days.

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

Unilever PLC  vs.  Vodafone Group PLC

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.

Vodafone Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vodafone Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Unilever PLC and Vodafone Group

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

The idea behind Unilever PLC and Vodafone Group PLC 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.