Correlation Between Coca Cola and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both Coca Cola and Diageo PLC 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 Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Coca Cola and Diageo PLC ADR, you can compare the effects of market volatilities on Coca Cola and Diageo PLC 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 Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Diageo PLC.
Diversification Opportunities for Coca Cola and Diageo PLC
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Coca and Diageo is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR 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 The Coca Cola are associated (or correlated) with Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of Coca Cola i.e., Coca Cola and Diageo PLC go up and down completely randomly.
Pair Corralation between Coca Cola and Diageo PLC
Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 0.62 times more return on investment than Diageo PLC. However, The Coca Cola is 1.62 times less risky than Diageo PLC. It trades about 0.02 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.05 per unit of risk. If you would invest 6,013 in The Coca Cola on August 27, 2024 and sell it today you would earn a total of 379.00 from holding The Coca Cola or generate 6.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Coca Cola vs. Diageo PLC ADR
Performance |
| Timeline |
| Coca Cola |
| Diageo PLC ADR |
Coca Cola and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coca Cola and Diageo PLC
The main advantage of trading using opposite Coca Cola and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.| Coca Cola vs. Monster Beverage Corp | Coca Cola vs. Celsius Holdings | Coca Cola vs. Coca Cola Consolidated | Coca Cola vs. Keurig Dr Pepper |
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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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