Correlation Between Coca Cola and Future Fund

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

Diversification Opportunities for Coca Cola and Future Fund

-0.08

Correlation Coefficient

Coca Cola  Future Fund

Good diversification

The 3 months correlation between Coca and Future is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and The Future Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Future Fund 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 Future Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Future Fund has no effect on the direction of Coca Cola i.e., Coca Cola and Future Fund go up and down completely randomly.

Pair Corralation between Coca Cola and Future Fund

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 1.13 times more return on investment than Future Fund. However, Coca Cola is 1.13 times more volatile than The Future Fund. It trades about 0.17 of its potential returns per unit of risk. The Future Fund 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

The Coca Cola  vs.  The Future Fund

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.

Future Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Future Fund has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Future Fund is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Coca Cola and Future Fund

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

The idea behind The Coca Cola and The Future Fund 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.