Correlation Between Coca Cola and Exchange Bank

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

Diversification Opportunities for Coca Cola and Exchange Bank

0.32

Correlation Coefficient

Coca Cola  Exchange Bank

Weak diversification

The 3 months correlation between Coca and Exchange is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Exchange Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Bank 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 Exchange Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Bank has no effect on the direction of Coca Cola i.e., Coca Cola and Exchange Bank go up and down completely randomly.

Pair Corralation between Coca Cola and Exchange Bank

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 0.38 times more return on investment than Exchange Bank. However, The Coca Cola is 2.62 times less risky than Exchange Bank. It trades about 0.17 of its potential returns per unit of risk. Exchange Bank is currently generating about 0.0 per unit of risk. If you would invest  6,239  in The Coca Cola on December 18, 2024 and sell it today you would earn a total of  773.00  from holding The Coca Cola or generate 12.39% return on investment over 90 days.

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

The Coca Cola  vs.  Exchange Bank

Coca Cola

Risk-Adjusted Performance

OK

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.

Exchange Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Exchange Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Exchange Bank is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Coca Cola and Exchange Bank

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

The idea behind The Coca Cola and Exchange Bank 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.