Correlation Between Coca Cola and Visa
Can any of the company-specific risk be diversified away by investing in both Coca Cola and Visa 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 Visa 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 Visa Class A, you can compare the effects of market volatilities on Coca Cola and Visa 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 Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Visa.
Diversification Opportunities for Coca Cola and Visa
Poor diversification
The 3 months correlation between Coca and Visa is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Coca Cola Consolidated and Visa Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Class A 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 Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Class A has no effect on the direction of Coca Cola i.e., Coca Cola and Visa go up and down completely randomly.
Pair Corralation between Coca Cola and Visa
Given the investment horizon of 90 days Coca Cola Consolidated is expected to generate 1.42 times more return on investment than Visa. However, Coca Cola is 1.42 times more volatile than Visa Class A. It trades about -0.04 of its potential returns per unit of risk. Visa Class A is currently generating about -0.12 per unit of risk. If you would invest 138,525 in Coca Cola Consolidated on January 5, 2025 and sell it today you would lose (7,916) from holding Coca Cola Consolidated or give up 5.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Coca Cola Consolidated vs. Visa Class A
Performance |
| Timeline |
| Coca Cola Consolidated |
| Visa Class A |
Coca Cola and Visa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coca Cola and Visa
The main advantage of trading using opposite Coca Cola and Visa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Visa 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 Visa will offset losses from the drop in Visa's long position.| Coca Cola vs. The Coca Cola | Coca Cola vs. Monster Beverage Corp | Coca Cola vs. Celsius Holdings | Coca Cola vs. Keurig Dr Pepper |
| Visa vs. American Express | Visa vs. PayPal Holdings | Visa vs. Capital One Financial | Visa vs. Upstart Holdings |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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