Correlation Between Direct Line and Coca Cola
Can any of the company-specific risk be diversified away by investing in both Direct Line 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 Direct Line and Coca Cola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Direct Line Insurance and Coca Cola Consolidated, you can compare the effects of market volatilities on Direct Line 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 Direct Line with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direct Line and Coca Cola.
Diversification Opportunities for Direct Line and Coca Cola
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Direct and Coca is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Direct Line Insurance and Coca Cola Consolidated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola Consolidated and Direct Line 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 Direct Line Insurance 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 Consolidated has no effect on the direction of Direct Line i.e., Direct Line and Coca Cola go up and down completely randomly.
Pair Corralation between Direct Line and Coca Cola
Assuming the 90 days trading horizon Direct Line Insurance is expected to generate 2.03 times more return on investment than Coca Cola. However, Direct Line is 2.03 times more volatile than Coca Cola Consolidated. It trades about 0.15 of its potential returns per unit of risk. Coca Cola Consolidated is currently generating about 0.05 per unit of risk. If you would invest 212.00 in Direct Line Insurance on September 12, 2024 and sell it today you would earn a total of 90.00 from holding Direct Line Insurance or generate 42.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Direct Line Insurance vs. Coca Cola Consolidated
Performance |
| Timeline |
| Direct Line Insurance |
| Coca Cola Consolidated |
Direct Line and Coca Cola Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Direct Line and Coca Cola
The main advantage of trading using opposite Direct Line and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direct Line 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.| Direct Line vs. Superior Plus Corp | Direct Line vs. SIVERS SEMICONDUCTORS AB | Direct Line vs. CHINA HUARONG ENERHD 50 | Direct Line vs. NORDIC HALIBUT AS |
| Coca Cola vs. CosmoSteel Holdings Limited | Coca Cola vs. Vastned Retail NV | Coca Cola vs. BJs Wholesale Club | Coca Cola vs. Perma Fix Environmental Services |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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