Correlation Between Clorox and Unilever PLC

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

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

Diversification Opportunities for Clorox and Unilever PLC

0.64

Correlation Coefficient

Clorox  Unilever PLC

Poor diversification

The 3 months correlation between Clorox and Unilever is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding The Clorox and Unilever PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC ADR and Clorox 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 The Clorox are associated (or correlated) with Unilever PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Unilever PLC ADR has no effect on the direction of Clorox i.e., Clorox and Unilever PLC go up and down completely randomly.

Pair Corralation between Clorox and Unilever PLC

Considering the 90-day investment horizon The Clorox is expected to under-perform the Unilever PLC. In addition to that, Clorox is 1.02 times more volatile than Unilever PLC ADR. It trades about -0.15 of its total potential returns per unit of risk. Unilever PLC ADR is currently generating about 0.16 per unit of volatility. If you would invest  4,935  in Unilever PLC ADR on February 2, 2024 and sell it today you would earn a total of  252.00  from holding Unilever PLC ADR or generate 5.11% return on investment over 90 days.

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

The Clorox  vs.  Unilever PLC ADR

Clorox

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Clorox has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Unilever PLC ADR

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever PLC ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating essential indicators, Unilever PLC may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Clorox and Unilever PLC

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

The idea behind The Clorox and Unilever PLC ADR 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.