Correlation Between Coca Cola and New Ulm

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

Diversification Opportunities for Coca Cola and New Ulm

0.76

Correlation Coefficient

Coca Cola  New Ulm

Poor diversification

The 3 months correlation between Coca and New is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and New Ulm Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Ulm Telecom 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 New Ulm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Ulm Telecom has no effect on the direction of Coca Cola i.e., Coca Cola and New Ulm go up and down completely randomly.

Pair Corralation between Coca Cola and New Ulm

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 1.63 times less return on investment than New Ulm. But when comparing it to its historical volatility, The Coca Cola is 2.93 times less risky than New Ulm. It trades about 0.15 of its potential returns per unit of risk. New Ulm Telecom is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,044  in New Ulm Telecom on December 25, 2024 and sell it today you would earn a total of  156.00  from holding New Ulm Telecom or generate 14.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

The Coca Cola  vs.  New Ulm Telecom

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.

New Ulm Telecom

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in New Ulm Telecom are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, New Ulm reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and New Ulm

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

The idea behind The Coca Cola and New Ulm Telecom 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.