Correlation Between Coca Cola and ALPS

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

Diversification Opportunities for Coca Cola and ALPS

-0.65

Correlation Coefficient

Coca Cola  ALPS

Excellent diversification

The 3 months correlation between Coca and ALPS is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and ALPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALPS 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 ALPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALPS has no effect on the direction of Coca Cola i.e., Coca Cola and ALPS go up and down completely randomly.

Pair Corralation between Coca Cola and ALPS

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 1.81 times less return on investment than ALPS. But when comparing it to its historical volatility, The Coca Cola is 1.4 times less risky than ALPS. It trades about 0.05 of its potential returns per unit of risk. ALPS is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,210  in ALPS on September 21, 2024 and sell it today you would earn a total of  379.00  from holding ALPS or generate 17.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	84.76%
Values	Daily Returns

The Coca Cola  vs.  ALPS

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 uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

ALPS

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days ALPS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, ALPS showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and ALPS

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

The idea behind The Coca Cola and ALPS 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.