Correlation Between Unilever PLC and ELF Beauty

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

Diversification Opportunities for Unilever PLC and ELF Beauty

-0.23

Correlation Coefficient

Unilever PLC  ELF Beauty

Very good diversification

The 3 months correlation between Unilever and ELF is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC ADR and ELF Beauty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELF Beauty 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 ELF Beauty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELF Beauty has no effect on the direction of Unilever PLC i.e., Unilever PLC and ELF Beauty go up and down completely randomly.

Pair Corralation between Unilever PLC and ELF Beauty

Allowing for the 90-day total investment horizon Unilever PLC is expected to generate 3.07 times less return on investment than ELF Beauty. But when comparing it to its historical volatility, Unilever PLC ADR is 6.97 times less risky than ELF Beauty. It trades about 0.39 of its potential returns per unit of risk. ELF Beauty is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  16,012  in ELF Beauty on March 4, 2024 and sell it today you would earn a total of  2,679  from holding ELF Beauty or generate 16.73% return on investment over 90 days.

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

Unilever PLC ADR  vs.  ELF Beauty

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 July 2024.

ELF Beauty

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ELF Beauty has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, ELF Beauty is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Unilever PLC and ELF Beauty

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

The idea behind Unilever PLC ADR and ELF Beauty 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.