Correlation Between Coca Cola and GENERAL

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

Diversification Opportunities for Coca Cola and GENERAL

0.63

Correlation Coefficient

Coca Cola  GENERAL

Poor diversification

The 3 months correlation between Coca and GENERAL is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and GENERAL ELECTRIC CO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELECTRIC 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELECTRIC has no effect on the direction of Coca Cola i.e., Coca Cola and GENERAL go up and down completely randomly.

Pair Corralation between Coca Cola and GENERAL

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 125.13 times less return on investment than GENERAL. But when comparing it to its historical volatility, The Coca Cola is 64.28 times less risky than GENERAL. It trades about 0.02 of its potential returns per unit of risk. GENERAL ELECTRIC CO is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,644  in GENERAL ELECTRIC CO on October 10, 2024 and sell it today you would lose (139.00) from holding GENERAL ELECTRIC CO or give up 1.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	74.95%
Values	Daily Returns

The Coca Cola  vs.  GENERAL ELECTRIC CO

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.

GENERAL ELECTRIC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELECTRIC CO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GENERAL 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 GENERAL

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

The idea behind The Coca Cola and GENERAL ELECTRIC CO 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.