Correlation Between Unilever PLC and Brown Forman

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

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

Diversification Opportunities for Unilever PLC and Brown Forman

0.8

Correlation Coefficient

Unilever PLC  Brown Forman

Very poor diversification

The 3 months correlation between Unilever and Brown is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC ADR and Brown Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman 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 ADR are associated (or correlated) with Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of Unilever PLC i.e., Unilever PLC and Brown Forman go up and down completely randomly.

Pair Corralation between Unilever PLC and Brown Forman

Allowing for the 90-day total investment horizon Unilever PLC ADR is expected to under-perform the Brown Forman. But the stock apears to be less risky and, when comparing its historical volatility, Unilever PLC ADR is 2.03 times less risky than Brown Forman. The stock trades about -0.26 of its potential returns per unit of risk. The Brown Forman is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,634  in Brown Forman on July 10, 2024 and sell it today you would earn a total of  26.00  from holding Brown Forman or generate 0.56% return on investment over 90 days.

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

Unilever PLC ADR  vs.  Brown Forman

Unilever PLC ADR

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever PLC ADR are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, Unilever PLC may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Brown Forman

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brown Forman are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile basic indicators, Brown Forman may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Unilever PLC and Brown Forman

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

The idea behind Unilever PLC ADR and Brown Forman 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.