Correlation Between Coca Cola and 1st Capital

Can any of the company-specific risk be diversified away by investing in both Coca Cola and 1st Capital 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 1st Capital 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 1st Capital Bank, you can compare the effects of market volatilities on Coca Cola and 1st Capital 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 1st Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and 1st Capital.

Diversification Opportunities for Coca Cola and 1st Capital

-0.61

Correlation Coefficient

Coca Cola  1st Capital

Excellent diversification

The 3 months correlation between Coca and 1st is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and 1st Capital Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1st Capital 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 1st Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1st Capital Bank has no effect on the direction of Coca Cola i.e., Coca Cola and 1st Capital go up and down completely randomly.

Pair Corralation between Coca Cola and 1st Capital

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 5.31 times less return on investment than 1st Capital. But when comparing it to its historical volatility, The Coca Cola is 1.57 times less risky than 1st Capital. It trades about 0.06 of its potential returns per unit of risk. 1st Capital Bank is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  990.00  in 1st Capital Bank on September 4, 2024 and sell it today you would earn a total of  410.00  from holding 1st Capital Bank or generate 41.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	60.73%
Values	Daily Returns

The Coca Cola  vs.  1st Capital Bank

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 uncertain 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.

1st Capital Bank

Risk-Adjusted Performance

0 of 100

Very Strong

Over the last 90 days 1st Capital Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat conflicting basic indicators, 1st Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Coca Cola and 1st Capital

The main advantage of trading using opposite Coca Cola and 1st Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, 1st Capital 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 1st Capital will offset losses from the drop in 1st Capital's long position.

The idea behind The Coca Cola and 1st Capital 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.