Correlation Between Coca Cola and Stone Harbor

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

Diversification Opportunities for Coca Cola and Stone Harbor

-0.48

Correlation Coefficient

Coca Cola  Stone Harbor

Very good diversification

The 3 months correlation between Coca and Stone is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Stone Harbor Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Harbor Emerging 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 Stone Harbor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Harbor Emerging has no effect on the direction of Coca Cola i.e., Coca Cola and Stone Harbor go up and down completely randomly.

Pair Corralation between Coca Cola and Stone Harbor

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 13.58 times less return on investment than Stone Harbor. But when comparing it to its historical volatility, The Coca Cola is 1.81 times less risky than Stone Harbor. It trades about 0.04 of its potential returns per unit of risk. Stone Harbor Emerging is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  477.00  in Stone Harbor Emerging on September 1, 2024 and sell it today you would earn a total of  70.00  from holding Stone Harbor Emerging or generate 14.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	8.33%
Values	Daily Returns

The Coca Cola  vs.  Stone Harbor Emerging

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. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Stone Harbor Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stone Harbor Emerging has generated negative risk-adjusted returns adding no value to fund investors. Despite fairly strong fundamental indicators, Stone Harbor is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Coca Cola and Stone Harbor

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

The idea behind The Coca Cola and Stone Harbor Emerging 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.