Correlation Between COCA A and Coca-Cola European

Can any of the company-specific risk be diversified away by investing in both COCA A and Coca-Cola European 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 A and Coca-Cola European into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between COCA A HBC and Coca Cola European Partners, you can compare the effects of market volatilities on COCA A and Coca-Cola European 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 A with a short position of Coca-Cola European. Check out your portfolio center. Please also check ongoing floating volatility patterns of COCA A and Coca-Cola European.

Diversification Opportunities for COCA A and Coca-Cola European

0.47

Correlation Coefficient

COCA A  Coca-Cola European

Very weak diversification

The 3 months correlation between COCA and Coca-Cola is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding COCA A HBC and Coca Cola European Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola European and COCA A 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 COCA A HBC are associated (or correlated) with Coca-Cola European. 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 European has no effect on the direction of COCA A i.e., COCA A and Coca-Cola European go up and down completely randomly.

Pair Corralation between COCA A and Coca-Cola European

Assuming the 90 days trading horizon COCA A HBC is expected to under-perform the Coca-Cola European. But the stock apears to be less risky and, when comparing its historical volatility, COCA A HBC is 1.25 times less risky than Coca-Cola European. The stock trades about -0.09 of its potential returns per unit of risk. The Coca Cola European Partners is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  7,370  in Coca Cola European Partners on September 27, 2024 and sell it today you would lose (40.00) from holding Coca Cola European Partners or give up 0.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

COCA A HBC  vs.  Coca Cola European Partners

COCA A HBC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in COCA A HBC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking signals, COCA A is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Coca Cola European

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola European Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Coca-Cola European is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with COCA A and Coca-Cola European

The main advantage of trading using opposite COCA A and Coca-Cola European positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COCA A position performs unexpectedly, Coca-Cola European 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 European will offset losses from the drop in Coca-Cola European's long position.

The idea behind COCA A HBC and Coca Cola European Partners 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.

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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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.