Correlation Between Koninklijke Philips and Unilever PLC

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

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

Diversification Opportunities for Koninklijke Philips and Unilever PLC

-0.49

Correlation Coefficient

Koninklijke Philips  Unilever PLC

Very good diversification

The 3 months correlation between Koninklijke and Unilever is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Koninklijke Philips NV and Unilever PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Unilever PLC and Koninklijke Philips 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 Koninklijke Philips NV 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 has no effect on the direction of Koninklijke Philips i.e., Koninklijke Philips and Unilever PLC go up and down completely randomly.

Pair Corralation between Koninklijke Philips and Unilever PLC

Assuming the 90 days trading horizon Koninklijke Philips NV is expected to generate 4.44 times more return on investment than Unilever PLC. However, Koninklijke Philips is 4.44 times more volatile than Unilever PLC. It trades about 0.27 of its potential returns per unit of risk. Unilever PLC is currently generating about 0.15 per unit of risk. If you would invest  1,861  in Koninklijke Philips NV on January 31, 2024 and sell it today you would earn a total of  693.00  from holding Koninklijke Philips NV or generate 37.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Koninklijke Philips NV  vs.  Unilever PLC

Koninklijke Philips

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Koninklijke Philips NV are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Koninklijke Philips unveiled solid returns over the last few months and may actually be approaching a breakup point.

Unilever PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Unilever PLC may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Koninklijke Philips and Unilever PLC

The main advantage of trading using opposite Koninklijke Philips and Unilever PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Koninklijke Philips 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 Koninklijke Philips NV and Unilever 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.