Correlation Between Constellation Brands and Coca Cola
Can any of the company-specific risk be diversified away by investing in both Constellation Brands and Coca Cola 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 Constellation Brands and Coca Cola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Constellation Brands Class and The Coca Cola, you can compare the effects of market volatilities on Constellation Brands and Coca Cola 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 Constellation Brands with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Brands and Coca Cola.
Diversification Opportunities for Constellation Brands and Coca Cola
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Constellation and Coca is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Constellation Brands 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 Constellation Brands Class are associated (or correlated) with Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca Cola has no effect on the direction of Constellation Brands i.e., Constellation Brands and Coca Cola go up and down completely randomly.
Pair Corralation between Constellation Brands and Coca Cola
Considering the 90-day investment horizon Constellation Brands is expected to generate 4.79 times less return on investment than Coca Cola. In addition to that, Constellation Brands is 1.52 times more volatile than The Coca Cola. It trades about 0.01 of its total potential returns per unit of risk. The Coca Cola is currently generating about 0.06 per unit of volatility. If you would invest 5,682 in The Coca Cola on August 24, 2024 and sell it today you would earn a total of 694.50 from holding The Coca Cola or generate 12.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Constellation Brands Class vs. The Coca Cola
Performance |
| Timeline |
| Constellation Brands |
| Coca Cola |
Constellation Brands and Coca Cola Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Constellation Brands and Coca Cola
The main advantage of trading using opposite Constellation Brands and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Brands position performs unexpectedly, Coca Cola 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 Coca Cola will offset losses from the drop in Coca Cola's long position.| Constellation Brands vs. Brown Forman | Constellation Brands vs. Duckhorn Portfolio | Constellation Brands vs. MGP Ingredients | Constellation Brands vs. Brown Forman |
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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