Correlation Between Coca Cola and Paramount Resources
Can any of the company-specific risk be diversified away by investing in both Coca Cola and Paramount Resources 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 Paramount Resources 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 Paramount Resources, you can compare the effects of market volatilities on Coca Cola and Paramount Resources 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 Paramount Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Paramount Resources.
Diversification Opportunities for Coca Cola and Paramount Resources
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Coca and Paramount is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Paramount Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paramount Resources 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 Paramount Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paramount Resources has no effect on the direction of Coca Cola i.e., Coca Cola and Paramount Resources go up and down completely randomly.
Pair Corralation between Coca Cola and Paramount Resources
Allowing for the 90-day total investment horizon Coca Cola is expected to generate 1.35 times less return on investment than Paramount Resources. But when comparing it to its historical volatility, The Coca Cola is 2.53 times less risky than Paramount Resources. It trades about 0.03 of its potential returns per unit of risk. Paramount Resources is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 1,950 in Paramount Resources on October 27, 2024 and sell it today you would earn a total of 78.00 from holding Paramount Resources or generate 4.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Coca Cola vs. Paramount Resources
Performance |
| Timeline |
| Coca Cola |
| Paramount Resources |
Coca Cola and Paramount Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coca Cola and Paramount Resources
The main advantage of trading using opposite Coca Cola and Paramount Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Paramount Resources 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 Paramount Resources will offset losses from the drop in Paramount Resources' long position.| Coca Cola vs. PepsiCo | Coca Cola vs. Vita Coco | Coca Cola vs. Aquagold International | Coca Cola vs. Thrivent High Yield |
| Paramount Resources vs. Gear Energy | Paramount Resources vs. Valeura Energy | Paramount Resources vs. Birchcliff Energy | Paramount Resources vs. Canacol Energy |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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