Correlation Between Coca Cola and TGIF
Can any of the company-specific risk be diversified away by investing in both Coca Cola and TGIF 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 TGIF 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 TGIF, you can compare the effects of market volatilities on Coca Cola and TGIF 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 TGIF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and TGIF.
Diversification Opportunities for Coca Cola and TGIF
Pay attention - limited upside
The 3 months correlation between Coca and TGIF is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and TGIF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TGIF 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 TGIF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TGIF has no effect on the direction of Coca Cola i.e., Coca Cola and TGIF go up and down completely randomly.
Pair Corralation between Coca Cola and TGIF
Allowing for the 90-day total investment horizon Coca Cola is expected to generate 1.53 times less return on investment than TGIF. In addition to that, Coca Cola is 3.15 times more volatile than TGIF. It trades about 0.04 of its total potential returns per unit of risk. TGIF is currently generating about 0.2 per unit of volatility. If you would invest 9,404 in TGIF on September 2, 2024 and sell it today you would earn a total of 145.00 from holding TGIF or generate 1.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 7.8% |
| Values | Daily Returns |
The Coca Cola vs. TGIF
Performance |
| Timeline |
| Coca Cola |
| TGIF |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Coca Cola and TGIF Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coca Cola and TGIF
The main advantage of trading using opposite Coca Cola and TGIF positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, TGIF 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 TGIF will offset losses from the drop in TGIF's long position.The idea behind The Coca Cola and TGIF 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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