Correlation Between Coca Cola and SIMS METAL

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

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

Diversification Opportunities for Coca Cola and SIMS METAL

0.16

Correlation Coefficient

Coca Cola  SIMS METAL

Average diversification

The 3 months correlation between Coca and SIMS is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and SIMS METAL MGT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMS METAL MGT and Coca Cola 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 Coca Cola are associated (or correlated) with SIMS METAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMS METAL MGT has no effect on the direction of Coca Cola i.e., Coca Cola and SIMS METAL go up and down completely randomly.

Pair Corralation between Coca Cola and SIMS METAL

Assuming the 90 days trading horizon The Coca Cola is expected to generate 0.92 times more return on investment than SIMS METAL. However, The Coca Cola is 1.09 times less risky than SIMS METAL. It trades about -0.07 of its potential returns per unit of risk. SIMS METAL MGT is currently generating about -0.63 per unit of risk. If you would invest  6,085  in The Coca Cola on October 4, 2024 and sell it today you would lose (103.00) from holding The Coca Cola or give up 1.69% of portfolio value over 90 days.

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

The Coca Cola  vs.  SIMS METAL MGT

Coca Cola

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Coca Cola has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Coca Cola is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SIMS METAL MGT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SIMS METAL MGT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Coca Cola and SIMS METAL

The main advantage of trading using opposite Coca Cola and SIMS METAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, SIMS METAL 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 SIMS METAL will offset losses from the drop in SIMS METAL's long position.

The idea behind The Coca Cola and SIMS METAL MGT 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.