Correlation Between Lundin Energy and Coca Cola

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

By analyzing existing cross correlation between Lundin Energy AB and The Coca Cola, you can compare the effects of market volatilities on Lundin Energy and Coca Cola 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 Lundin Energy with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lundin Energy and Coca Cola.

Diversification Opportunities for Lundin Energy and Coca Cola

0.82

Correlation Coefficient

Lundin Energy  Coca Cola

Very poor diversification

The 3 months correlation between Lundin and Coca is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Lundin Energy AB and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Lundin Energy 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 Lundin Energy AB are associated (or correlated) with Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca Cola has no effect on the direction of Lundin Energy i.e., Lundin Energy and Coca Cola go up and down completely randomly.

Pair Corralation between Lundin Energy and Coca Cola

Assuming the 90 days horizon Lundin Energy AB is expected to generate 3.42 times more return on investment than Coca Cola. However, Lundin Energy is 3.42 times more volatile than The Coca Cola. It trades about 0.13 of its potential returns per unit of risk. The Coca Cola is currently generating about -0.03 per unit of risk. If you would invest  55.00  in Lundin Energy AB on September 23, 2024 and sell it today you would earn a total of  4.00  from holding Lundin Energy AB or generate 7.27% return on investment over 90 days.

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

Lundin Energy AB  vs.  The Coca Cola

Lundin Energy AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lundin Energy AB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 rather sound basic indicators, Coca Cola is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Lundin Energy and Coca Cola

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

The idea behind Lundin Energy AB and The Coca Cola 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.