Correlation Between Topbuild Corp and Coca Cola

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

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

Diversification Opportunities for Topbuild Corp and Coca Cola

-0.61

Correlation Coefficient

Topbuild Corp  Coca Cola

Excellent diversification

The 3 months correlation between Topbuild and Coca is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Topbuild Corp and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Topbuild Corp 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 Topbuild Corp 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 Topbuild Corp i.e., Topbuild Corp and Coca Cola go up and down completely randomly.

Pair Corralation between Topbuild Corp and Coca Cola

Considering the 90-day investment horizon Topbuild Corp is expected to generate 10.54 times less return on investment than Coca Cola. In addition to that, Topbuild Corp is 1.68 times more volatile than The Coca Cola. It trades about 0.01 of its total potential returns per unit of risk. The Coca Cola is currently generating about 0.19 per unit of volatility. If you would invest  6,158  in The Coca Cola on December 28, 2024 and sell it today you would earn a total of  916.00  from holding The Coca Cola or generate 14.87% return on investment over 90 days.

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

Topbuild Corp  vs.  The Coca Cola

Topbuild Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Topbuild Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Topbuild Corp is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Coca Cola

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Coca Cola displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Topbuild Corp and Coca Cola

The main advantage of trading using opposite Topbuild Corp and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Topbuild Corp 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 Topbuild Corp and The Coca Cola 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.