Correlation Between Coca Cola and Rio Tinto

Can any of the company-specific risk be diversified away by investing in both Coca Cola and Rio Tinto 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 Rio Tinto 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 Rio Tinto PLC, you can compare the effects of market volatilities on Coca Cola and Rio Tinto 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 Rio Tinto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Rio Tinto.

Diversification Opportunities for Coca Cola and Rio Tinto

0.91

Correlation Coefficient

Coca Cola  Rio Tinto

Almost no diversification

The 3 months correlation between Coca and Rio is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Rio Tinto PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Tinto PLC 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 Rio Tinto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Tinto PLC has no effect on the direction of Coca Cola i.e., Coca Cola and Rio Tinto go up and down completely randomly.

Pair Corralation between Coca Cola and Rio Tinto

Assuming the 90 days horizon The Coca Cola is expected to generate 0.93 times more return on investment than Rio Tinto. However, The Coca Cola is 1.07 times less risky than Rio Tinto. It trades about 0.36 of its potential returns per unit of risk. Rio Tinto PLC is currently generating about 0.07 per unit of risk. If you would invest  1,342,500  in The Coca Cola on October 12, 2024 and sell it today you would earn a total of  120,000  from holding The Coca Cola or generate 8.94% return on investment over 90 days.

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

The Coca Cola  vs.  Rio Tinto PLC

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 weak performance in the last few months, the Stock's fundamental drivers remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Rio Tinto PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rio Tinto PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Coca Cola and Rio Tinto

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

The idea behind The Coca Cola and Rio Tinto PLC 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.