Correlation Between Freeport and Coca Cola

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

By analyzing existing cross correlation between Freeport McMoRan 5 percent and The Coca Cola, you can compare the effects of market volatilities on Freeport 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 Freeport with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Freeport and Coca Cola.

Diversification Opportunities for Freeport and Coca Cola

0.41

Correlation Coefficient

Freeport  Coca Cola

Very weak diversification

The 3 months correlation between Freeport and Coca is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Freeport McMoRan 5 percent and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Freeport 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 Freeport McMoRan 5 percent 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 Freeport i.e., Freeport and Coca Cola go up and down completely randomly.

Pair Corralation between Freeport and Coca Cola

Assuming the 90 days trading horizon Freeport McMoRan 5 percent is expected to under-perform the Coca Cola. But the bond apears to be less risky and, when comparing its historical volatility, Freeport McMoRan 5 percent is 1.44 times less risky than Coca Cola. The bond trades about 0.0 of its potential returns per unit of risk. The The Coca Cola is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  6,016  in The Coca Cola on September 19, 2024 and sell it today you would earn a total of  269.00  from holding The Coca Cola or generate 4.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

Freeport McMoRan 5 percent  vs.  The Coca Cola

Freeport McMoRan 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan 5 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Freeport is not utilizing all of its potentials. The recent 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 Freeport and Coca Cola

The main advantage of trading using opposite Freeport and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Freeport 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 Freeport McMoRan 5 percent 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.