Correlation Between Coca Cola and MI Homes
Can any of the company-specific risk be diversified away by investing in both Coca Cola and MI Homes 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 MI Homes 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 MI Homes, you can compare the effects of market volatilities on Coca Cola and MI Homes 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 MI Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and MI Homes.
Diversification Opportunities for Coca Cola and MI Homes
Very weak diversification
The 3 months correlation between Coca and MHO is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI Homes 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 MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of Coca Cola i.e., Coca Cola and MI Homes go up and down completely randomly.
Pair Corralation between Coca Cola and MI Homes
Allowing for the 90-day total investment horizon Coca Cola is expected to generate 7.1 times less return on investment than MI Homes. But when comparing it to its historical volatility, The Coca Cola is 2.93 times less risky than MI Homes. It trades about 0.04 of its potential returns per unit of risk. MI Homes is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 7,533 in MI Homes on August 31, 2024 and sell it today you would earn a total of 8,970 from holding MI Homes or generate 119.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Coca Cola vs. MI Homes
Performance |
| Timeline |
| Coca Cola |
| MI Homes |
Coca Cola and MI Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coca Cola and MI Homes
The main advantage of trading using opposite Coca Cola and MI Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, MI Homes 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 MI Homes will offset losses from the drop in MI Homes' long position.| Coca Cola vs. Monster Beverage Corp | Coca Cola vs. RLJ Lodging Trust | Coca Cola vs. Aquagold International | Coca Cola vs. Stepstone Group |
| MI Homes vs. Century Communities | MI Homes vs. Dream Finders Homes | MI Homes vs. DR Horton | MI Homes vs. Everus Construction Group |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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