Correlation Between Boston Beer and Coca Cola

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

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

Diversification Opportunities for Boston Beer and Coca Cola

-0.04

Correlation Coefficient

Boston Beer  Coca Cola

Good diversification

The 3 months correlation between Boston and Coca is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding The Boston Beer and Coca Cola Consolidated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola Consolidated and Boston Beer 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 The Boston Beer 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 Consolidated has no effect on the direction of Boston Beer i.e., Boston Beer and Coca Cola go up and down completely randomly.

Pair Corralation between Boston Beer and Coca Cola

Assuming the 90 days trading horizon The Boston Beer is expected to generate 0.78 times more return on investment than Coca Cola. However, The Boston Beer is 1.28 times less risky than Coca Cola. It trades about -0.12 of its potential returns per unit of risk. Coca Cola Consolidated is currently generating about -0.17 per unit of risk. If you would invest  23,320  in The Boston Beer on December 30, 2024 and sell it today you would lose (1,420) from holding The Boston Beer or give up 6.09% of portfolio value over 90 days.

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

The Boston Beer  vs.  Coca Cola Consolidated

Boston Beer

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Boston Beer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Coca Cola Consolidated

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola Consolidated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Coca Cola is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Boston Beer and Coca Cola

The main advantage of trading using opposite Boston Beer and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boston Beer 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 The Boston Beer and Coca Cola Consolidated 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.