Correlation Between Coca Cola and West Red
Can any of the company-specific risk be diversified away by investing in both Coca Cola and West Red 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 West Red 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 West Red Lake, you can compare the effects of market volatilities on Coca Cola and West Red 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 West Red. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and West Red.
Diversification Opportunities for Coca Cola and West Red
Weak diversification
The 3 months correlation between Coca and West is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and West Red Lake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Red Lake 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 West Red. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Red Lake has no effect on the direction of Coca Cola i.e., Coca Cola and West Red go up and down completely randomly.
Pair Corralation between Coca Cola and West Red
Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 0.22 times more return on investment than West Red. However, The Coca Cola is 4.58 times less risky than West Red. It trades about 0.05 of its potential returns per unit of risk. West Red Lake is currently generating about 0.01 per unit of risk. If you would invest 5,729 in The Coca Cola on November 5, 2024 and sell it today you would earn a total of 619.00 from holding The Coca Cola or generate 10.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Coca Cola vs. West Red Lake
Performance |
| Timeline |
| Coca Cola |
| West Red Lake |
Coca Cola and West Red Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coca Cola and West Red
The main advantage of trading using opposite Coca Cola and West Red positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, West Red 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 West Red will offset losses from the drop in West Red's long position.| Coca Cola vs. Monster Beverage Corp | Coca Cola vs. Celsius Holdings | Coca Cola vs. Coca Cola Consolidated | Coca Cola vs. Keurig Dr Pepper |
| West Red vs. Universal Technical Institute | West Red vs. Scholastic | West Red vs. Graham Holdings Co | West Red vs. Zane Interactive Publishing |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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