Correlation Between SBM Offshore and Coca Cola

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

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

Diversification Opportunities for SBM Offshore and Coca Cola

-0.11

Correlation Coefficient

SBM Offshore  Coca Cola

Good diversification

The 3 months correlation between SBM and Coca is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and SBM Offshore 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 SBM Offshore NV 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 SBM Offshore i.e., SBM Offshore and Coca Cola go up and down completely randomly.

Pair Corralation between SBM Offshore and Coca Cola

Assuming the 90 days horizon SBM Offshore NV is expected to generate 6.01 times more return on investment than Coca Cola. However, SBM Offshore is 6.01 times more volatile than The Coca Cola. It trades about 0.03 of its potential returns per unit of risk. The Coca Cola is currently generating about 0.01 per unit of risk. If you would invest  1,577  in SBM Offshore NV on September 19, 2024 and sell it today you would earn a total of  123.00  from holding SBM Offshore NV or generate 7.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	72.18%
Values	Daily Returns

SBM Offshore NV  vs.  The Coca Cola

SBM Offshore NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBM Offshore NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, SBM Offshore is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 fragile 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.

Pair Trading with SBM Offshore and Coca Cola

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