Correlation Between Coca Cola and Merck
Can any of the company-specific risk be diversified away by investing in both Coca Cola and Merck 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 Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coca Cola Consolidated and Merck Company, you can compare the effects of market volatilities on Coca Cola and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Merck.
Diversification Opportunities for Coca Cola and Merck
Significant diversification
The 3 months correlation between Coca and Merck is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Coca Cola Consolidated and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Cola Consolidated are associated (or correlated) with Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Coca Cola i.e., Coca Cola and Merck go up and down completely randomly.
Pair Corralation between Coca Cola and Merck
Given the investment horizon of 90 days Coca Cola Consolidated is expected to generate 1.64 times more return on investment than Merck. However, Coca Cola is 1.64 times more volatile than Merck Company. It trades about 0.11 of its potential returns per unit of risk. Merck Company is currently generating about 0.0 per unit of risk. If you would invest 50,386 in Coca Cola Consolidated on October 25, 2024 and sell it today you would earn a total of 81,391 from holding Coca Cola Consolidated or generate 161.53% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
Coca Cola Consolidated vs. Merck Company
Performance |
Timeline |
Coca Cola Consolidated |
Merck Company |
Coca Cola and Merck Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Coca Cola and Merck
The main advantage of trading using opposite Coca Cola and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.Coca Cola vs. PepsiCo | Coca Cola vs. Vita Coco | Coca Cola vs. Aquagold International | Coca Cola vs. Thrivent High Yield |
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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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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