Correlation Between Unilever PLC and Erste Group

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

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

Diversification Opportunities for Unilever PLC and Erste Group

-0.24

Correlation Coefficient

Unilever PLC  Erste Group

Very good diversification

The 3 months correlation between Unilever and Erste is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC and Erste Group Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erste Group Bank 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 Erste Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erste Group Bank has no effect on the direction of Unilever PLC i.e., Unilever PLC and Erste Group go up and down completely randomly.

Pair Corralation between Unilever PLC and Erste Group

Assuming the 90 days trading horizon Unilever PLC is expected to generate 2.24 times less return on investment than Erste Group. But when comparing it to its historical volatility, Unilever PLC is 1.71 times less risky than Erste Group. It trades about 0.02 of its potential returns per unit of risk. Erste Group Bank is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6,064  in Erste Group Bank on January 17, 2025 and sell it today you would earn a total of  196.00  from holding Erste Group Bank or generate 3.23% return on investment over 90 days.

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

Unilever PLC  vs.  Erste Group Bank

Unilever PLC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong forward indicators, Unilever PLC is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Erste Group Bank

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Erste Group is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Unilever PLC and Erste Group

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

The idea behind Unilever PLC and Erste Group Bank 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.