Correlation Between Unilever PLC and Newell Brands

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

Diversification Opportunities for Unilever PLC and Newell Brands

0.09

Correlation Coefficient

Unilever PLC  Newell Brands

Significant diversification

The 3 months correlation between Unilever and Newell is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC ADR and Newell Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newell Brands 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 Newell Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newell Brands has no effect on the direction of Unilever PLC i.e., Unilever PLC and Newell Brands go up and down completely randomly.

Pair Corralation between Unilever PLC and Newell Brands

Allowing for the 90-day total investment horizon Unilever PLC is expected to generate 1.27 times less return on investment than Newell Brands. But when comparing it to its historical volatility, Unilever PLC ADR is 2.25 times less risky than Newell Brands. It trades about 0.09 of its potential returns per unit of risk. Newell Brands is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  784.00  in Newell Brands on January 30, 2024 and sell it today you would earn a total of  21.00  from holding Newell Brands or generate 2.68% return on investment over 90 days.

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

Unilever PLC ADR  vs.  Newell Brands

Unilever PLC ADR

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Unilever PLC ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Unilever PLC is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Newell Brands

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Unilever PLC and Newell Brands

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

The idea behind Unilever PLC ADR and Newell Brands 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.