Correlation Between Coca Cola and Rocky Mountain

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Can any of the company-specific risk be diversified away by investing in both Coca Cola and Rocky Mountain 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 Rocky Mountain 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 Rocky Mountain High, you can compare the effects of market volatilities on Coca Cola and Rocky Mountain 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 Rocky Mountain. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Rocky Mountain.

Diversification Opportunities for Coca Cola and Rocky Mountain

0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Coca and Rocky is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Rocky Mountain High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Mountain High 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 Rocky Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Mountain High has no effect on the direction of Coca Cola i.e., Coca Cola and Rocky Mountain go up and down completely randomly.

Pair Corralation between Coca Cola and Rocky Mountain

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 68.01 times less return on investment than Rocky Mountain. But when comparing it to its historical volatility, The Coca Cola is 25.44 times less risky than Rocky Mountain. It trades about 0.04 of its potential returns per unit of risk. Rocky Mountain High is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  0.35  in Rocky Mountain High on September 25, 2024 and sell it today you would earn a total of  0.35  from holding Rocky Mountain High or generate 100.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

The Coca Cola  vs.  Rocky Mountain High

 Performance 
       Timeline  
Coca Cola 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days The Coca Cola has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
Rocky Mountain High 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain High are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Rocky Mountain sustained solid returns over the last few months and may actually be approaching a breakup point.

Coca Cola and Rocky Mountain Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Coca Cola and Rocky Mountain

The main advantage of trading using opposite Coca Cola and Rocky Mountain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Rocky Mountain 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 Rocky Mountain will offset losses from the drop in Rocky Mountain's long position.
The idea behind The Coca Cola and Rocky Mountain High pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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