Correlation Between Hershey and Coca Cola

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

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

Diversification Opportunities for Hershey and Coca Cola

0.7

Correlation Coefficient

Hershey  Coca Cola

Poor diversification

The 3 months correlation between Hershey and Coca is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Hershey Co and Coca Cola Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Hershey 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 Hershey Co 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 Hershey i.e., Hershey and Coca Cola go up and down completely randomly.

Pair Corralation between Hershey and Coca Cola

Assuming the 90 days trading horizon Hershey is expected to generate 3.54 times less return on investment than Coca Cola. In addition to that, Hershey is 1.55 times more volatile than Coca Cola Co. It trades about 0.03 of its total potential returns per unit of risk. Coca Cola Co is currently generating about 0.17 per unit of volatility. If you would invest  6,155  in Coca Cola Co on December 30, 2024 and sell it today you would earn a total of  930.00  from holding Coca Cola Co or generate 15.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Hershey Co  vs.  Coca Cola Co

Hershey

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hershey Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Hershey is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Coca Cola

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Coca Cola unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hershey and Coca Cola

The main advantage of trading using opposite Hershey and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hershey 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 Hershey Co 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.