Correlation Between Coca Cola and Alcoa Corp

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

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

Diversification Opportunities for Coca Cola and Alcoa Corp

-0.33

Correlation Coefficient

Coca Cola  Alcoa Corp

Very good diversification

The 3 months correlation between Coca and Alcoa is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Coca Cola Consolidated and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp 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 Coca Cola Consolidated are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Coca Cola i.e., Coca Cola and Alcoa Corp go up and down completely randomly.

Pair Corralation between Coca Cola and Alcoa Corp

Given the investment horizon of 90 days Coca Cola Consolidated is expected to generate 0.78 times more return on investment than Alcoa Corp. However, Coca Cola Consolidated is 1.28 times less risky than Alcoa Corp. It trades about 0.07 of its potential returns per unit of risk. Alcoa Corp is currently generating about -0.03 per unit of risk. If you would invest  121,935  in Coca Cola Consolidated on December 19, 2024 and sell it today you would earn a total of  9,693  from holding Coca Cola Consolidated or generate 7.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Coca Cola Consolidated  vs.  Alcoa Corp

Coca Cola Consolidated

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola Consolidated are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Alcoa Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Alcoa Corp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Coca Cola and Alcoa Corp

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

The idea behind Coca Cola Consolidated and Alcoa Corp 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..