Correlation Between Coca Cola and Western Asset

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

Diversification Opportunities for Coca Cola and Western Asset

0.89

Correlation Coefficient

Coca Cola  Western Asset

Very poor diversification

The 3 months correlation between Coca and Western is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Western Asset Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Asset Inflation 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 Western Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Asset Inflation has no effect on the direction of Coca Cola i.e., Coca Cola and Western Asset go up and down completely randomly.

Pair Corralation between Coca Cola and Western Asset

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the Western Asset. In addition to that, Coca Cola is 2.86 times more volatile than Western Asset Inflation. It trades about -0.22 of its total potential returns per unit of risk. Western Asset Inflation is currently generating about -0.04 per unit of volatility. If you would invest  957.00  in Western Asset Inflation on August 31, 2024 and sell it today you would lose (7.00) from holding Western Asset Inflation or give up 0.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

The Coca Cola  vs.  Western Asset Inflation

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.

Western Asset Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Asset Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Western Asset 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 Western Asset

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

The idea behind The Coca Cola and Western Asset Inflation 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.