Correlation Between GM and COCA COLA

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

By analyzing existing cross correlation between General Motors and COCA A HBC, you can compare the effects of market volatilities on GM 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 GM with a short position of COCA COLA. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and COCA COLA.

Diversification Opportunities for GM and COCA COLA

-0.6

Correlation Coefficient

GM  COCA COLA

Excellent diversification

The 3 months correlation between GM and COCA is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and COCA A HBC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COCA A HBC and GM 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 General Motors 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 A HBC has no effect on the direction of GM i.e., GM and COCA COLA go up and down completely randomly.

Pair Corralation between GM and COCA COLA

Allowing for the 90-day total investment horizon GM is expected to generate 1.55 times less return on investment than COCA COLA. In addition to that, GM is 1.25 times more volatile than COCA A HBC. It trades about 0.04 of its total potential returns per unit of risk. COCA A HBC is currently generating about 0.08 per unit of volatility. If you would invest  2,199  in COCA A HBC on December 2, 2024 and sell it today you would earn a total of  1,901  from holding COCA A HBC or generate 86.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.61%
Values	Daily Returns

General Motors  vs.  COCA A HBC

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

COCA A HBC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in COCA A HBC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, COCA COLA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and COCA COLA

The main advantage of trading using opposite GM and COCA COLA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and COCA A HBC 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.