Correlation Between Unilever PLC and Henkel Ag

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

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

Diversification Opportunities for Unilever PLC and Henkel Ag

0.77

Correlation Coefficient

Unilever PLC  Henkel Ag

Poor diversification

The 3 months correlation between Unilever and Henkel is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Henkel Ag A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henkel Ag A 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 Henkel Ag. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henkel Ag A has no effect on the direction of Unilever PLC i.e., Unilever PLC and Henkel Ag go up and down completely randomly.

Pair Corralation between Unilever PLC and Henkel Ag

Assuming the 90 days horizon Unilever PLC is expected to under-perform the Henkel Ag. In addition to that, Unilever PLC is 2.51 times more volatile than Henkel Ag A. It trades about -0.03 of its total potential returns per unit of risk. Henkel Ag A is currently generating about 0.03 per unit of volatility. If you would invest  2,226  in Henkel Ag A on September 13, 2024 and sell it today you would earn a total of  32.00  from holding Henkel Ag A or generate 1.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Unilever PLC  vs.  Henkel Ag A

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. Despite nearly stable basic indicators, Unilever PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Henkel Ag A

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Henkel Ag A are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Henkel Ag 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 Henkel Ag

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

The idea behind Unilever PLC and Henkel Ag A 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.