Correlation Between Coca Cola and Relief Therapeutics

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

Diversification Opportunities for Coca Cola and Relief Therapeutics

-0.44

Correlation Coefficient

Coca Cola  Relief Therapeutics

Very good diversification

The 3 months correlation between Coca and Relief is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Relief Therapeutics Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Relief Therapeutics 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 Relief Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Relief Therapeutics has no effect on the direction of Coca Cola i.e., Coca Cola and Relief Therapeutics go up and down completely randomly.

Pair Corralation between Coca Cola and Relief Therapeutics

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 2.44 times less return on investment than Relief Therapeutics. But when comparing it to its historical volatility, The Coca Cola is 8.3 times less risky than Relief Therapeutics. It trades about 0.02 of its potential returns per unit of risk. Relief Therapeutics Holding is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,294  in Relief Therapeutics Holding on September 24, 2024 and sell it today you would lose (814.00) from holding Relief Therapeutics Holding or give up 62.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

The Coca Cola  vs.  Relief Therapeutics Holding

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 uncertain 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.

Relief Therapeutics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Relief Therapeutics Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Relief Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and Relief Therapeutics

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

The idea behind The Coca Cola and Relief Therapeutics Holding 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.