Correlation Between Coca Cola and First Trust
Can any of the company-specific risk be diversified away by investing in both Coca Cola and First Trust 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 First Trust 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 First Trust Mortgage, you can compare the effects of market volatilities on Coca Cola and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and First Trust.
Diversification Opportunities for Coca Cola and First Trust
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Coca and First is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and First Trust Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Mortgage 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Mortgage has no effect on the direction of Coca Cola i.e., Coca Cola and First Trust go up and down completely randomly.
Pair Corralation between Coca Cola and First Trust
Allowing for the 90-day total investment horizon Coca Cola is expected to generate 1.1 times less return on investment than First Trust. In addition to that, Coca Cola is 1.28 times more volatile than First Trust Mortgage. It trades about 0.05 of its total potential returns per unit of risk. First Trust Mortgage is currently generating about 0.06 per unit of volatility. If you would invest 1,125 in First Trust Mortgage on August 24, 2024 and sell it today you would earn a total of 60.00 from holding First Trust Mortgage or generate 5.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Coca Cola vs. First Trust Mortgage
Performance |
| Timeline |
| Coca Cola |
| First Trust Mortgage |
Coca Cola and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coca Cola and First Trust
The main advantage of trading using opposite Coca Cola and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Coca Cola vs. Monster Beverage Corp | Coca Cola vs. Celsius Holdings | Coca Cola vs. Coca Cola Femsa SAB | Coca Cola vs. Vita Coco |
| First Trust vs. First Trust Senior | First Trust vs. Western Asset Global | First Trust vs. Western Asset Global | First Trust vs. BlackRock Floating Rate |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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