Correlation Between Prudential Financial and Coca Cola

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

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

Diversification Opportunities for Prudential Financial and Coca Cola

0.45

Correlation Coefficient

Prudential Financial  Coca Cola

Very weak diversification

The 3 months correlation between Prudential and Coca is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Prudential Financial and Coca Cola FEMSA SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola FEMSA and Prudential Financial 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 Prudential Financial 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 FEMSA has no effect on the direction of Prudential Financial i.e., Prudential Financial and Coca Cola go up and down completely randomly.

Pair Corralation between Prudential Financial and Coca Cola

Assuming the 90 days trading horizon Prudential Financial is expected to generate 1.17 times more return on investment than Coca Cola. However, Prudential Financial is 1.17 times more volatile than Coca Cola FEMSA SAB. It trades about 0.18 of its potential returns per unit of risk. Coca Cola FEMSA SAB is currently generating about 0.16 per unit of risk. If you would invest  199,243  in Prudential Financial on December 29, 2024 and sell it today you would earn a total of  44,757  from holding Prudential Financial or generate 22.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Prudential Financial  vs.  Coca Cola FEMSA SAB

Prudential Financial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prudential Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Prudential Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Coca Cola FEMSA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola FEMSA SAB are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Coca Cola sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prudential Financial and Coca Cola

The main advantage of trading using opposite Prudential Financial and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prudential Financial 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 Prudential Financial and Coca Cola FEMSA SAB 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.