Correlation Between Coca Cola and First Trust

Can any of the company-specific risk be diversified away by investing in both Coca Cola and First Trust 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 First Trust 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 First Trust NASDAQ 100, you can compare the effects of market volatilities on Coca Cola and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and First Trust.

Diversification Opportunities for Coca Cola and First Trust

-0.23

Correlation Coefficient

Coca Cola  First Trust

Very good diversification

The 3 months correlation between Coca and First is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and First Trust NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust NASDAQ 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust NASDAQ has no effect on the direction of Coca Cola i.e., Coca Cola and First Trust go up and down completely randomly.

Pair Corralation between Coca Cola and First Trust

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the First Trust. In addition to that, Coca Cola is 1.13 times more volatile than First Trust NASDAQ 100. It trades about -0.17 of its total potential returns per unit of risk. First Trust NASDAQ 100 is currently generating about 0.05 per unit of volatility. If you would invest  9,383  in First Trust NASDAQ 100 on October 22, 2024 and sell it today you would earn a total of  194.00  from holding First Trust NASDAQ 100 or generate 2.07% 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.  First Trust NASDAQ 100

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 fragile 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.

First Trust NASDAQ

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust NASDAQ 100 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, First Trust is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Coca Cola and First Trust

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

The idea behind The Coca Cola and First Trust NASDAQ 100 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.