Correlation Between Coca Cola and Clean

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Can any of the company-specific risk be diversified away by investing in both Coca Cola and Clean 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 Clean 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 Clean Harbors 5125, you can compare the effects of market volatilities on Coca Cola and Clean 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 Clean. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Clean.

Diversification Opportunities for Coca Cola and Clean

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Coca and Clean is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Clean Harbors 5125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Harbors 5125 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 Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Harbors 5125 has no effect on the direction of Coca Cola i.e., Coca Cola and Clean go up and down completely randomly.

Pair Corralation between Coca Cola and Clean

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 0.77 times more return on investment than Clean. However, The Coca Cola is 1.29 times less risky than Clean. It trades about 0.11 of its potential returns per unit of risk. Clean Harbors 5125 is currently generating about -0.22 per unit of risk. If you would invest  6,139  in The Coca Cola on September 17, 2024 and sell it today you would earn a total of  125.50  from holding The Coca Cola or generate 2.04% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy85.71%
ValuesDaily Returns

The Coca Cola  vs.  Clean Harbors 5125

 Performance 
       Timeline  
Coca Cola 

Risk-Adjusted Performance

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Weak
 
Strong
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.
Clean Harbors 5125 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Clean Harbors 5125 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for Clean Harbors 5125 investors.

Coca Cola and Clean Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Coca Cola and Clean

The main advantage of trading using opposite Coca Cola and Clean positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Clean 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 Clean will offset losses from the drop in Clean's long position.
The idea behind The Coca Cola and Clean Harbors 5125 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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