Correlation Between Coca Cola and Oracle

Can any of the company-specific risk be diversified away by investing in both Coca Cola and Oracle 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 Oracle into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Coca Cola FEMSA SAB and Oracle, you can compare the effects of market volatilities on Coca Cola and Oracle 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 Oracle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Oracle.

Diversification Opportunities for Coca Cola and Oracle

-0.41

Correlation Coefficient

Coca Cola  Oracle

Very good diversification

The 3 months correlation between Coca and Oracle is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Coca Cola FEMSA SAB and Oracle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oracle 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 Coca Cola FEMSA SAB are associated (or correlated) with Oracle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oracle has no effect on the direction of Coca Cola i.e., Coca Cola and Oracle go up and down completely randomly.

Pair Corralation between Coca Cola and Oracle

Assuming the 90 days trading horizon Coca Cola FEMSA SAB is expected to under-perform the Oracle. But the stock apears to be less risky and, when comparing its historical volatility, Coca Cola FEMSA SAB is 1.78 times less risky than Oracle. The stock trades about 0.0 of its potential returns per unit of risk. The Oracle is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  276,876  in Oracle on August 30, 2024 and sell it today you would earn a total of  100,124  from holding Oracle or generate 36.16% return on investment over 90 days.

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

Coca Cola FEMSA SAB  vs.  Oracle

Coca Cola FEMSA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coca Cola FEMSA SAB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Coca Cola is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Oracle

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Oracle showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and Oracle

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

The idea behind Coca Cola FEMSA SAB and Oracle 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.