Correlation Between Coca Cola and PRAXAIR

Can any of the company-specific risk be diversified away by investing in both Coca Cola and PRAXAIR 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 PRAXAIR 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 PRAXAIR INC 32, you can compare the effects of market volatilities on Coca Cola and PRAXAIR 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 PRAXAIR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and PRAXAIR.

Diversification Opportunities for Coca Cola and PRAXAIR

0.39

Correlation Coefficient

Coca Cola  PRAXAIR

Weak diversification

The 3 months correlation between Coca and PRAXAIR is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and PRAXAIR INC 32 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PRAXAIR INC 32 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 PRAXAIR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PRAXAIR INC 32 has no effect on the direction of Coca Cola i.e., Coca Cola and PRAXAIR go up and down completely randomly.

Pair Corralation between Coca Cola and PRAXAIR

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the PRAXAIR. In addition to that, Coca Cola is 3.56 times more volatile than PRAXAIR INC 32. It trades about -0.23 of its total potential returns per unit of risk. PRAXAIR INC 32 is currently generating about -0.11 per unit of volatility. If you would invest  9,866  in PRAXAIR INC 32 on October 9, 2024 and sell it today you would lose (159.00) from holding PRAXAIR INC 32 or give up 1.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.08%
Values	Daily Returns

The Coca Cola  vs.  PRAXAIR INC 32

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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

PRAXAIR INC 32

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PRAXAIR INC 32 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PRAXAIR 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 PRAXAIR

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

The idea behind The Coca Cola and PRAXAIR INC 32 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.