Correlation Between Coca Cola and UNITED

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

Diversification Opportunities for Coca Cola and UNITED

0.7

Correlation Coefficient

Coca Cola  UNITED

Poor diversification

The 3 months correlation between Coca and UNITED is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and UNITED PARCEL SERVICE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED PARCEL SERVICE 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 UNITED. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED PARCEL SERVICE has no effect on the direction of Coca Cola i.e., Coca Cola and UNITED go up and down completely randomly.

Pair Corralation between Coca Cola and UNITED

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the UNITED. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 1.37 times less risky than UNITED. The stock trades about -0.21 of its potential returns per unit of risk. The UNITED PARCEL SERVICE is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,702  in UNITED PARCEL SERVICE on September 1, 2024 and sell it today you would earn a total of  138.00  from holding UNITED PARCEL SERVICE or generate 1.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	80.95%
Values	Daily Returns

The Coca Cola  vs.  UNITED PARCEL SERVICE

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 fragile 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.

UNITED PARCEL SERVICE

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in UNITED PARCEL SERVICE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, UNITED is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Coca Cola and UNITED

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

The idea behind The Coca Cola and UNITED PARCEL SERVICE 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.