Correlation Between Coca Cola and NORFOLK

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

Diversification Opportunities for Coca Cola and NORFOLK

0.77

Correlation Coefficient

Coca Cola  NORFOLK

Poor diversification

The 3 months correlation between Coca and NORFOLK is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and NORFOLK SOUTHN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NORFOLK SOUTHN P 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 NORFOLK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NORFOLK SOUTHN P has no effect on the direction of Coca Cola i.e., Coca Cola and NORFOLK go up and down completely randomly.

Pair Corralation between Coca Cola and NORFOLK

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 296.02 times less return on investment than NORFOLK. But when comparing it to its historical volatility, The Coca Cola is 102.77 times less risky than NORFOLK. It trades about 0.03 of its potential returns per unit of risk. NORFOLK SOUTHN P is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,839  in NORFOLK SOUTHN P on October 11, 2024 and sell it today you would lose (679.00) from holding NORFOLK SOUTHN P or give up 6.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	58.18%
Values	Daily Returns

The Coca Cola  vs.  NORFOLK SOUTHN P

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.

NORFOLK SOUTHN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NORFOLK SOUTHN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for NORFOLK SOUTHN P investors.

Pair Trading with Coca Cola and NORFOLK

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

The idea behind The Coca Cola and NORFOLK SOUTHN P 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.