Correlation Between Coca Cola and Large Cap

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

Diversification Opportunities for Coca Cola and Large Cap

-0.32

Correlation Coefficient

Coca Cola  Large Cap

Very good diversification

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

Pair Corralation between Coca Cola and Large Cap

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 1.37 times more return on investment than Large Cap. However, Coca Cola is 1.37 times more volatile than Large Cap E. It trades about 0.15 of its potential returns per unit of risk. Large Cap E is currently generating about -0.03 per unit of risk. If you would invest  6,199  in The Coca Cola on December 27, 2024 and sell it today you would earn a total of  682.00  from holding The Coca Cola or generate 11.0% 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.  Large Cap E

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 uncertain basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Large Cap E

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap E has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Large Cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Coca Cola and Large Cap

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

The idea behind The Coca Cola and Large Cap E 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.