Correlation Between Arca Continental and Coca Cola

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

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

Diversification Opportunities for Arca Continental and Coca Cola

0.92

Correlation Coefficient

Arca Continental  Coca Cola

Almost no diversification

The 3 months correlation between Arca and Coca is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Arca Continental SAB and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Arca Continental 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 Arca Continental SAB 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 Arca Continental i.e., Arca Continental and Coca Cola go up and down completely randomly.

Pair Corralation between Arca Continental and Coca Cola

Assuming the 90 days horizon Arca Continental SAB is expected to generate 2.1 times more return on investment than Coca Cola. However, Arca Continental is 2.1 times more volatile than The Coca Cola. It trades about 0.06 of its potential returns per unit of risk. The Coca Cola is currently generating about 0.02 per unit of risk. If you would invest  890.00  in Arca Continental SAB on December 10, 2024 and sell it today you would earn a total of  125.00  from holding Arca Continental SAB or generate 14.04% return on investment over 90 days.

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

Arca Continental SAB  vs.  The Coca Cola

Arca Continental SAB

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arca Continental SAB are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Arca Continental reported solid returns over the last few months and may actually be approaching a breakup point.

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 13 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Coca Cola displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arca Continental and Coca Cola

The main advantage of trading using opposite Arca Continental and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arca Continental 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 Arca Continental SAB 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.