Correlation Between Unilever PLC and US Foods

Can any of the company-specific risk be diversified away by investing in both Unilever PLC and US Foods 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 US Foods 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 US Foods Holding, you can compare the effects of market volatilities on Unilever PLC and US Foods 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 US Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unilever PLC and US Foods.

Diversification Opportunities for Unilever PLC and US Foods

-0.63

Correlation Coefficient

Unilever PLC  US Foods

Excellent diversification

The 3 months correlation between Unilever and USFD is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC ADR and US Foods Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Foods Holding 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 US Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Foods Holding has no effect on the direction of Unilever PLC i.e., Unilever PLC and US Foods go up and down completely randomly.

Pair Corralation between Unilever PLC and US Foods

Allowing for the 90-day total investment horizon Unilever PLC is expected to generate 2.25 times less return on investment than US Foods. But when comparing it to its historical volatility, Unilever PLC ADR is 1.44 times less risky than US Foods. It trades about 0.06 of its potential returns per unit of risk. US Foods Holding is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  5,464  in US Foods Holding on August 18, 2024 and sell it today you would earn a total of  1,003  from holding US Foods Holding or generate 18.36% return on investment over 90 days.

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

Unilever PLC ADR  vs.  US Foods Holding

Unilever PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Unilever PLC is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

US Foods Holding

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Foods Holding are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, US Foods may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Unilever PLC and US Foods

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

The idea behind Unilever PLC ADR and US Foods Holding 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.