Correlation Between Small Cap and Coca Cola

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

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

Diversification Opportunities for Small Cap and Coca Cola

0.73

Correlation Coefficient

Small Cap  Coca Cola

Poor diversification

The 3 months correlation between Small and Coca is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Small Cap 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 Small Cap Premium 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 Small Cap i.e., Small Cap and Coca Cola go up and down completely randomly.

Pair Corralation between Small Cap and Coca Cola

Considering the 90-day investment horizon Small Cap is expected to generate 6.11 times less return on investment than Coca Cola. But when comparing it to its historical volatility, Small Cap Premium is 3.51 times less risky than Coca Cola. It trades about 0.08 of its potential returns per unit of risk. The Coca Cola is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6,211  in The Coca Cola on December 25, 2024 and sell it today you would earn a total of  672.00  from holding The Coca Cola or generate 10.82% return on investment over 90 days.

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

Small Cap Premium  vs.  The Coca Cola

Small Cap Premium

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Coca Cola

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Small Cap and Coca Cola

The main advantage of trading using opposite Small Cap and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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 Small Cap Premium 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.

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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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .