Correlation Between Coca Cola and MDC Holdings

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

Diversification Opportunities for Coca Cola and MDC Holdings

-0.91

Correlation Coefficient

Coca Cola  MDC Holdings

Pay attention - limited upside

The 3 months correlation between Coca and MDC is -0.91. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and MDC Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDC Holdings 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 MDC Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDC Holdings has no effect on the direction of Coca Cola i.e., Coca Cola and MDC Holdings go up and down completely randomly.

Pair Corralation between Coca Cola and MDC Holdings

If you would invest  4,705  in MDC Holdings on September 12, 2024 and sell it today you would earn a total of  0.00  from holding MDC Holdings or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	1.59%
Values	Daily Returns

The Coca Cola  vs.  MDC Holdings

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.

MDC Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MDC Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, MDC Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Coca Cola and MDC Holdings

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

The idea behind The Coca Cola and MDC Holdings 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.