Correlation Between Coca Cola and DOMTAR

Can any of the company-specific risk be diversified away by investing in both Coca Cola and DOMTAR 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 DOMTAR 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 DOMTAR P 625, you can compare the effects of market volatilities on Coca Cola and DOMTAR 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 DOMTAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and DOMTAR.

Diversification Opportunities for Coca Cola and DOMTAR

0.35

Correlation Coefficient

Coca Cola  DOMTAR

Weak diversification

The 3 months correlation between Coca and DOMTAR is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and DOMTAR P 625 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DOMTAR P 625 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 DOMTAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DOMTAR P 625 has no effect on the direction of Coca Cola i.e., Coca Cola and DOMTAR go up and down completely randomly.

Pair Corralation between Coca Cola and DOMTAR

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 0.28 times more return on investment than DOMTAR. However, The Coca Cola is 3.57 times less risky than DOMTAR. It trades about -0.1 of its potential returns per unit of risk. DOMTAR P 625 is currently generating about -0.04 per unit of risk. If you would invest  6,291  in The Coca Cola on October 11, 2024 and sell it today you would lose (120.00) from holding The Coca Cola or give up 1.91% of portfolio value over 90 days.

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

The Coca Cola  vs.  DOMTAR P 625

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.

DOMTAR P 625

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DOMTAR P 625 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DOMTAR is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Coca Cola and DOMTAR

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

The idea behind The Coca Cola and DOMTAR P 625 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.