Correlation Between Coca Cola and Global Energy

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

Diversification Opportunities for Coca Cola and Global Energy

0.16

Correlation Coefficient

Coca Cola  Global Energy

Average diversification

The 3 months correlation between Coca and Global is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Global Energy Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Energy Metals 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 Global Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Energy Metals has no effect on the direction of Coca Cola i.e., Coca Cola and Global Energy go up and down completely randomly.

Pair Corralation between Coca Cola and Global Energy

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 2.38 times less return on investment than Global Energy. But when comparing it to its historical volatility, The Coca Cola is 10.67 times less risky than Global Energy. It trades about 0.06 of its potential returns per unit of risk. Global Energy Metals is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6.31  in Global Energy Metals on November 20, 2024 and sell it today you would lose (4.86) from holding Global Energy Metals or give up 77.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

The Coca Cola  vs.  Global Energy Metals

Coca Cola

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Global Energy Metals

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Energy Metals are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Global Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and Global Energy

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

The idea behind The Coca Cola and Global Energy Metals 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.