Correlation Between Unilever PLC and LOréal SA
Can any of the company-specific risk be diversified away by investing in both Unilever PLC and LOréal SA 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 LOréal SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Unilever PLC and LOral SA, you can compare the effects of market volatilities on Unilever PLC and LOréal SA 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 LOréal SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unilever PLC and LOréal SA.
Diversification Opportunities for Unilever PLC and LOréal SA
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Unilever and LOréal is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and LOral SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOréal SA 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 LOréal SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOréal SA has no effect on the direction of Unilever PLC i.e., Unilever PLC and LOréal SA go up and down completely randomly.
Pair Corralation between Unilever PLC and LOréal SA
Assuming the 90 days horizon Unilever PLC is expected to generate 1.5 times more return on investment than LOréal SA. However, Unilever PLC is 1.5 times more volatile than LOral SA. It trades about -0.08 of its potential returns per unit of risk. LOral SA is currently generating about -0.28 per unit of risk. If you would invest 6,298 in Unilever PLC on August 28, 2024 and sell it today you would lose (398.00) from holding Unilever PLC or give up 6.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Unilever PLC vs. LOral SA
Performance |
| Timeline |
| Unilever PLC |
| LOréal SA |
Unilever PLC and LOréal SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Unilever PLC and LOréal SA
The main advantage of trading using opposite Unilever PLC and LOréal SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unilever PLC position performs unexpectedly, LOréal SA 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 LOréal SA will offset losses from the drop in LOréal SA's long position.| Unilever PLC vs. LOreal Co ADR | Unilever PLC vs. Estee Lauder Companies | Unilever PLC vs. Church Dwight | Unilever PLC vs. LOral SA |
| LOréal SA vs. LOreal Co ADR | LOréal SA vs. Unilever PLC ADR | LOréal SA vs. Kimberly Clark | LOréal SA vs. The Clorox |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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