Correlation Between Danone SA and Coca Cola

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

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

Diversification Opportunities for Danone SA and Coca Cola

0.75

Correlation Coefficient

Danone SA  Coca Cola

Poor diversification

The 3 months correlation between Danone and Coca is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and Coca Cola FEMSA SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola FEMSA and Danone SA 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 Danone SA 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 FEMSA has no effect on the direction of Danone SA i.e., Danone SA and Coca Cola go up and down completely randomly.

Pair Corralation between Danone SA and Coca Cola

Assuming the 90 days horizon Danone SA is expected to generate 1.2 times less return on investment than Coca Cola. But when comparing it to its historical volatility, Danone SA is 3.15 times less risky than Coca Cola. It trades about 0.12 of its potential returns per unit of risk. Coca Cola FEMSA SAB is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  770.00  in Coca Cola FEMSA SAB on December 29, 2024 and sell it today you would earn a total of  55.00  from holding Coca Cola FEMSA SAB or generate 7.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Danone SA  vs.  Coca Cola FEMSA SAB

Danone SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Danone SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Coca Cola FEMSA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola FEMSA SAB are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Danone SA and Coca Cola

The main advantage of trading using opposite Danone SA and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Danone SA 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 Danone SA and Coca Cola FEMSA SAB 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.