Correlation Between Unilever PLC and Koninklijke Philips

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

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

Diversification Opportunities for Unilever PLC and Koninklijke Philips

0.66

Correlation Coefficient

Unilever PLC  Koninklijke Philips

Poor diversification

The 3 months correlation between Unilever and Koninklijke is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Koninklijke Philips NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Koninklijke Philips 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 Koninklijke Philips. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Koninklijke Philips has no effect on the direction of Unilever PLC i.e., Unilever PLC and Koninklijke Philips go up and down completely randomly.

Pair Corralation between Unilever PLC and Koninklijke Philips

Assuming the 90 days trading horizon Unilever PLC is expected to generate 0.37 times more return on investment than Koninklijke Philips. However, Unilever PLC is 2.68 times less risky than Koninklijke Philips. It trades about -0.05 of its potential returns per unit of risk. Koninklijke Philips NV is currently generating about -0.06 per unit of risk. If you would invest  5,813  in Unilever PLC on September 13, 2024 and sell it today you would lose (201.00) from holding Unilever PLC or give up 3.46% of portfolio value over 90 days.

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

Unilever PLC  vs.  Koninklijke Philips NV

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Koninklijke Philips

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Koninklijke Philips NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Unilever PLC and Koninklijke Philips

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

The idea behind Unilever PLC and Koninklijke Philips NV 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.