Correlation Between Coca Cola and AUTONATION

Can any of the company-specific risk be diversified away by investing in both Coca Cola and AUTONATION 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 AUTONATION 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 AUTONATION INC 38, you can compare the effects of market volatilities on Coca Cola and AUTONATION 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 AUTONATION. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and AUTONATION.

Diversification Opportunities for Coca Cola and AUTONATION

0.33

Correlation Coefficient

Coca Cola  AUTONATION

Weak diversification

The 3 months correlation between Coca and AUTONATION is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and AUTONATION INC 38 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AUTONATION INC 38 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 AUTONATION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AUTONATION INC 38 has no effect on the direction of Coca Cola i.e., Coca Cola and AUTONATION go up and down completely randomly.

Pair Corralation between Coca Cola and AUTONATION

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the AUTONATION. In addition to that, Coca Cola is 1.29 times more volatile than AUTONATION INC 38. It trades about -0.17 of its total potential returns per unit of risk. AUTONATION INC 38 is currently generating about -0.08 per unit of volatility. If you would invest  9,668  in AUTONATION INC 38 on October 20, 2024 and sell it today you would lose (314.00) from holding AUTONATION INC 38 or give up 3.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	88.52%
Values	Daily Returns

The Coca Cola  vs.  AUTONATION INC 38

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.

AUTONATION INC 38

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AUTONATION INC 38 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AUTONATION is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Coca Cola and AUTONATION

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

The idea behind The Coca Cola and AUTONATION INC 38 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 Transaction History module to view history of all your transactions and understand their impact on performance.