Correlation Between SMA Solar and Coca Cola

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

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

Diversification Opportunities for SMA Solar and Coca Cola

0.73

Correlation Coefficient

SMA Solar  Coca Cola

Poor diversification

The 3 months correlation between SMA and Coca is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Coca Cola Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and SMA Solar 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 SMA Solar Technology 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 SMA Solar i.e., SMA Solar and Coca Cola go up and down completely randomly.

Pair Corralation between SMA Solar and Coca Cola

Assuming the 90 days trading horizon SMA Solar Technology is expected to generate 5.51 times more return on investment than Coca Cola. However, SMA Solar is 5.51 times more volatile than Coca Cola Co. It trades about 0.0 of its potential returns per unit of risk. Coca Cola Co is currently generating about -0.12 per unit of risk. If you would invest  1,535  in SMA Solar Technology on October 6, 2024 and sell it today you would lose (56.00) from holding SMA Solar Technology or give up 3.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.62%
Values	Daily Returns

SMA Solar Technology  vs.  Coca Cola Co

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Coca Cola

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coca Cola Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with SMA Solar and Coca Cola

The main advantage of trading using opposite SMA Solar and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMA Solar 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 SMA Solar Technology 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.