Correlation Between Unilever Pakistan and United Insurance

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

By analyzing existing cross correlation between Unilever Pakistan Foods and United Insurance, you can compare the effects of market volatilities on Unilever Pakistan and United Insurance 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 Pakistan with a short position of United Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Unilever Pakistan and United Insurance.

Diversification Opportunities for Unilever Pakistan and United Insurance

0.5

Correlation Coefficient

Unilever Pakistan  United Insurance

Very weak diversification

The 3 months correlation between Unilever and United is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Unilever Pakistan Foods and United Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Insurance and Unilever Pakistan 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 Pakistan Foods are associated (or correlated) with United Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Insurance has no effect on the direction of Unilever Pakistan i.e., Unilever Pakistan and United Insurance go up and down completely randomly.

Pair Corralation between Unilever Pakistan and United Insurance

Assuming the 90 days trading horizon Unilever Pakistan Foods is expected to under-perform the United Insurance. But the stock apears to be less risky and, when comparing its historical volatility, Unilever Pakistan Foods is 1.3 times less risky than United Insurance. The stock trades about -0.47 of its potential returns per unit of risk. The United Insurance is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,175  in United Insurance on January 24, 2024 and sell it today you would earn a total of  77.00  from holding United Insurance or generate 6.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	55.56%
Values	Daily Returns

Unilever Pakistan Foods  vs.  United Insurance

Unilever Pakistan Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever Pakistan Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

United Insurance

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Insurance are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, United Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unilever Pakistan and United Insurance

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

The idea behind Unilever Pakistan Foods and United Insurance 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.