Correlation Between Coca Cola and WashTec AG

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

Diversification Opportunities for Coca Cola and WashTec AG

-0.67

Correlation Coefficient

Coca Cola  WashTec AG

Excellent diversification

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

Pair Corralation between Coca Cola and WashTec AG

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the WashTec AG. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 2.84 times less risky than WashTec AG. The stock trades about -0.22 of its potential returns per unit of risk. The WashTec AG is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  326.00  in WashTec AG on August 31, 2024 and sell it today you would earn a total of  62.00  from holding WashTec AG or generate 19.02% return on investment over 90 days.

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

The Coca Cola  vs.  WashTec AG

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.

WashTec AG

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WashTec AG are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, WashTec AG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and WashTec AG

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

The idea behind The Coca Cola and WashTec AG 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.