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 Indxx, 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
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Coca and First is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and First Trust Indxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Indxx 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 Indxx 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 The Coca Cola is expected to under-perform the First Trust. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 1.31 times less risky than First Trust. The stock trades about -0.1 of its potential returns per unit of risk. The First Trust Indxx is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,463 in First Trust Indxx on August 31, 2024 and sell it today you would earn a total of 21.00 from holding First Trust Indxx or generate 0.85% 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 Indxx
Performance |
| Timeline |
| Coca Cola |
| First Trust Indxx |
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. RLJ Lodging Trust | Coca Cola vs. Aquagold International | Coca Cola vs. Stepstone Group |
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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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