Correlation Between Unit and Shell PLC

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

By analyzing existing cross correlation between Unit Corporation and Shell PLC, you can compare the effects of market volatilities on Unit and Shell PLC 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 Unit with a short position of Shell PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unit and Shell PLC.

Diversification Opportunities for Unit and Shell PLC

-0.39

Correlation Coefficient

Unit  Shell PLC

Very good diversification

The 3 months correlation between Unit and Shell is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Unit Corp. and Shell PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC and Unit 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 Unit Corporation are associated (or correlated) with Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC has no effect on the direction of Unit i.e., Unit and Shell PLC go up and down completely randomly.

Pair Corralation between Unit and Shell PLC

Assuming the 90 days horizon Unit Corporation is expected to generate 8.76 times more return on investment than Shell PLC. However, Unit is 8.76 times more volatile than Shell PLC. It trades about 0.14 of its potential returns per unit of risk. Shell PLC is currently generating about 0.02 per unit of risk. If you would invest  50.00  in Unit Corporation on September 16, 2024 and sell it today you would earn a total of  10.00  from holding Unit Corporation or generate 20.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Unit Corp.  vs.  Shell PLC

Unit

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Unit Corporation are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, Unit showed solid returns over the last few months and may actually be approaching a breakup point.

Shell PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shell PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Shell PLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Unit and Shell PLC

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

The idea behind Unit Corporation and Shell 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.