Correlation Between Coca Cola and Bassett Furniture

Can any of the company-specific risk be diversified away by investing in both Coca Cola and Bassett Furniture 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 Bassett Furniture 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 Bassett Furniture Industries, you can compare the effects of market volatilities on Coca Cola and Bassett Furniture 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 Bassett Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Bassett Furniture.

Diversification Opportunities for Coca Cola and Bassett Furniture

-0.55

Correlation Coefficient

Coca Cola  Bassett Furniture

Excellent diversification

The 3 months correlation between Coca and Bassett is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Bassett Furniture Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bassett Furniture 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 Bassett Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bassett Furniture has no effect on the direction of Coca Cola i.e., Coca Cola and Bassett Furniture go up and down completely randomly.

Pair Corralation between Coca Cola and Bassett Furniture

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the Bassett Furniture. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 2.2 times less risky than Bassett Furniture. The stock trades about -0.2 of its potential returns per unit of risk. The Bassett Furniture Industries is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,370  in Bassett Furniture Industries on September 14, 2024 and sell it today you would lose (6.00) from holding Bassett Furniture Industries or give up 0.44% of portfolio value over 90 days.

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

The Coca Cola  vs.  Bassett Furniture Industries

Coca Cola

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Coca Cola has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Bassett Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bassett Furniture Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Bassett Furniture is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Coca Cola and Bassett Furniture

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

The idea behind The Coca Cola and Bassett Furniture Industries 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.