Correlation Between Coca Cola and Mid Capitalization

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

Diversification Opportunities for Coca Cola and Mid Capitalization

-0.82

Correlation Coefficient

Coca Cola  Mid Capitalization

Pay attention - limited upside

The 3 months correlation between Coca and Mid is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Mid Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Capitalization 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 Mid Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Capitalization has no effect on the direction of Coca Cola i.e., Coca Cola and Mid Capitalization go up and down completely randomly.

Pair Corralation between Coca Cola and Mid Capitalization

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the Mid Capitalization. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 1.17 times less risky than Mid Capitalization. The stock trades about -0.21 of its potential returns per unit of risk. The Mid Capitalization Portfolio is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  886.00  in Mid Capitalization Portfolio on September 3, 2024 and sell it today you would earn a total of  155.00  from holding Mid Capitalization Portfolio or generate 17.49% return on investment over 90 days.

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

The Coca Cola  vs.  Mid Capitalization Portfolio

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.

Mid Capitalization

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Capitalization Portfolio are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Mid Capitalization showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and Mid Capitalization

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

The idea behind The Coca Cola and Mid Capitalization Portfolio 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.