Correlation Between Coca Cola and Financial Select
Can any of the company-specific risk be diversified away by investing in both Coca Cola and Financial Select 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 Financial Select 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 Financial Select Sector, you can compare the effects of market volatilities on Coca Cola and Financial Select 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 Financial Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Financial Select.
Diversification Opportunities for Coca Cola and Financial Select
-0.86 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Coca and Financial is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Financial Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Select Sector 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 Financial Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Select Sector has no effect on the direction of Coca Cola i.e., Coca Cola and Financial Select go up and down completely randomly.
Pair Corralation between Coca Cola and Financial Select
Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the Financial Select. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 1.7 times less risky than Financial Select. The stock trades about -0.23 of its potential returns per unit of risk. The Financial Select Sector is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 4,663 in Financial Select Sector on August 26, 2024 and sell it today you would earn a total of 410.00 from holding Financial Select Sector or generate 8.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Coca Cola vs. Financial Select Sector
Performance |
| Timeline |
| Coca Cola |
| Financial Select Sector |
Coca Cola and Financial Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coca Cola and Financial Select
The main advantage of trading using opposite Coca Cola and Financial Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Financial Select 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 Financial Select will offset losses from the drop in Financial Select's long position.The idea behind The Coca Cola and Financial Select Sector 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.| Financial Select vs. Energy Select Sector | Financial Select vs. Technology Select Sector | Financial Select vs. Health Care Select | Financial Select vs. Industrial Select Sector |
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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