Correlation Between Unilever PLC and Merck
Can any of the company-specific risk be diversified away by investing in both Unilever PLC and Merck 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 Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Unilever PLC and Merck Company, you can compare the effects of market volatilities on Unilever PLC and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unilever PLC and Merck.
Diversification Opportunities for Unilever PLC and Merck
0.81 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Unilever and Merck is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Unilever PLC i.e., Unilever PLC and Merck go up and down completely randomly.
Pair Corralation between Unilever PLC and Merck
Assuming the 90 days trading horizon Unilever PLC is expected to generate 1.05 times more return on investment than Merck. However, Unilever PLC is 1.05 times more volatile than Merck Company. It trades about 0.07 of its potential returns per unit of risk. Merck Company is currently generating about 0.02 per unit of risk. If you would invest 4,372 in Unilever PLC on August 24, 2024 and sell it today you would earn a total of 1,060 from holding Unilever PLC or generate 24.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Unilever PLC vs. Merck Company
Performance |
| Timeline |
| Unilever PLC |
| Merck Company |
Unilever PLC and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Unilever PLC and Merck
The main advantage of trading using opposite Unilever PLC and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unilever PLC position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Unilever PLC vs. SBM Offshore NV | Unilever PLC vs. Wiener Privatbank SE | Unilever PLC vs. Vienna Insurance Group | Unilever PLC vs. UNIQA Insurance Group |
| Merck vs. Vienna Insurance Group | Merck vs. Oberbank AG | Merck vs. Wiener Privatbank SE | Merck vs. CNH Industrial NV |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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