Correlation Between Coca Cola and 437076BW1

Can any of the company-specific risk be diversified away by investing in both Coca Cola and 437076BW1 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 437076BW1 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 HOME DEPOT INC, you can compare the effects of market volatilities on Coca Cola and 437076BW1 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 437076BW1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and 437076BW1.

Diversification Opportunities for Coca Cola and 437076BW1

0.67

Correlation Coefficient

Coca Cola  437076BW1

Poor diversification

The 3 months correlation between Coca and 437076BW1 is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and HOME DEPOT INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HOME DEPOT INC 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 437076BW1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HOME DEPOT INC has no effect on the direction of Coca Cola i.e., Coca Cola and 437076BW1 go up and down completely randomly.

Pair Corralation between Coca Cola and 437076BW1

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the 437076BW1. In addition to that, Coca Cola is 3.75 times more volatile than HOME DEPOT INC. It trades about -0.21 of its total potential returns per unit of risk. HOME DEPOT INC is currently generating about -0.07 per unit of volatility. If you would invest  9,925  in HOME DEPOT INC on September 2, 2024 and sell it today you would lose (94.00) from holding HOME DEPOT INC or give up 0.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

The Coca Cola  vs.  HOME DEPOT INC

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.

HOME DEPOT INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HOME DEPOT INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 437076BW1 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 437076BW1

The main advantage of trading using opposite Coca Cola and 437076BW1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, 437076BW1 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 437076BW1 will offset losses from the drop in 437076BW1's long position.

The idea behind The Coca Cola and HOME DEPOT INC 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.