Correlation Between American Homes and Coca Cola

Can any of the company-specific risk be diversified away by investing in both American Homes and Coca Cola 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 American Homes and Coca Cola into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Homes 4 and Coca Cola Co, you can compare the effects of market volatilities on American Homes and Coca Cola 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 American Homes with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Homes and Coca Cola.

Diversification Opportunities for American Homes and Coca Cola

0.08

Correlation Coefficient

American Homes  Coca Cola

Significant diversification

The 3 months correlation between American and Coca is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding American Homes 4 and Coca Cola Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and American Homes 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 American Homes 4 are associated (or correlated) with Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca Cola has no effect on the direction of American Homes i.e., American Homes and Coca Cola go up and down completely randomly.

Pair Corralation between American Homes and Coca Cola

Assuming the 90 days trading horizon American Homes is expected to generate 10.94 times less return on investment than Coca Cola. In addition to that, American Homes is 1.05 times more volatile than Coca Cola Co. It trades about 0.01 of its total potential returns per unit of risk. Coca Cola Co is currently generating about 0.13 per unit of volatility. If you would invest  6,209  in Coca Cola Co on December 25, 2024 and sell it today you would earn a total of  656.00  from holding Coca Cola Co or generate 10.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.55%
Values	Daily Returns

American Homes 4  vs.  Coca Cola Co

American Homes 4

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Homes 4 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, American Homes is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Coca Cola

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with American Homes and Coca Cola

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

The idea behind American Homes 4 and Coca Cola Co 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.