Correlation Between Bank of America and Coca Cola
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Coca Cola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and The Coca Cola, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Coca Cola.
Diversification Opportunities for Bank of America and Coca Cola
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Bank and Coca is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Coca Cola go up and down completely randomly.
Pair Corralation between Bank of America and Coca Cola
Assuming the 90 days trading horizon Bank of America is expected to generate 1.48 times more return on investment than Coca Cola. However, Bank of America is 1.48 times more volatile than The Coca Cola. It trades about 0.07 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 61,628 in Bank of America on August 31, 2024 and sell it today you would earn a total of 36,872 from holding Bank of America or generate 59.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. The Coca Cola
Performance |
| Timeline |
| Bank of America |
| Coca Cola |
Bank of America and Coca Cola Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Coca Cola
The main advantage of trading using opposite Bank of America and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Delta Air Lines | Bank of America vs. GMxico Transportes SAB | Bank of America vs. Micron Technology | Bank of America vs. CVS Health |
| Coca Cola vs. PepsiCo | Coca Cola vs. Monster Beverage Corp | Coca Cola vs. The Select Sector | Coca Cola vs. Promotora y Operadora |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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