Correlation Between COCA COLA and Coca-Cola European
Can any of the company-specific risk be diversified away by investing in both COCA COLA and Coca-Cola European 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 COCA COLA and Coca-Cola European into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between COCA A HBC and Coca Cola European Partners, you can compare the effects of market volatilities on COCA COLA and Coca-Cola European 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 COCA COLA with a short position of Coca-Cola European. Check out your portfolio center. Please also check ongoing floating volatility patterns of COCA COLA and Coca-Cola European.
Diversification Opportunities for COCA COLA and Coca-Cola European
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between COCA and Coca-Cola is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding COCA A HBC and Coca Cola European Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola European and COCA COLA 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 COCA A HBC are associated (or correlated) with Coca-Cola European. 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 European has no effect on the direction of COCA COLA i.e., COCA COLA and Coca-Cola European go up and down completely randomly.
Pair Corralation between COCA COLA and Coca-Cola European
Assuming the 90 days trading horizon COCA COLA is expected to generate 1.25 times less return on investment than Coca-Cola European. But when comparing it to its historical volatility, COCA A HBC is 1.28 times less risky than Coca-Cola European. It trades about 0.17 of its potential returns per unit of risk. Coca Cola European Partners is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 6,684 in Coca Cola European Partners on September 5, 2024 and sell it today you would earn a total of 506.00 from holding Coca Cola European Partners or generate 7.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
COCA A HBC vs. Coca Cola European Partners
Performance |
| Timeline |
| COCA A HBC |
| Coca Cola European |
COCA COLA and Coca-Cola European Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with COCA COLA and Coca-Cola European
The main advantage of trading using opposite COCA COLA and Coca-Cola European positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COCA COLA position performs unexpectedly, Coca-Cola European 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 European will offset losses from the drop in Coca-Cola European's long position.The idea behind COCA A HBC and Coca Cola European Partners 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.| Coca-Cola European vs. PepsiCo | Coca-Cola European vs. COCA A HBC | Coca-Cola European vs. National Beverage Corp |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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