Correlation Between Coca Cola and COMMONWEALTH

Can any of the company-specific risk be diversified away by investing in both Coca Cola and COMMONWEALTH 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 COMMONWEALTH 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 COMMONWEALTH EDISON 47, you can compare the effects of market volatilities on Coca Cola and COMMONWEALTH 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 COMMONWEALTH. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and COMMONWEALTH.

Diversification Opportunities for Coca Cola and COMMONWEALTH

-0.44

Correlation Coefficient

Coca Cola  COMMONWEALTH

Very good diversification

The 3 months correlation between Coca and COMMONWEALTH is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and COMMONWEALTH EDISON 47 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMMONWEALTH EDISON 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 COMMONWEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMMONWEALTH EDISON has no effect on the direction of Coca Cola i.e., Coca Cola and COMMONWEALTH go up and down completely randomly.

Pair Corralation between Coca Cola and COMMONWEALTH

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 0.37 times more return on investment than COMMONWEALTH. However, The Coca Cola is 2.72 times less risky than COMMONWEALTH. It trades about 0.02 of its potential returns per unit of risk. COMMONWEALTH EDISON 47 is currently generating about 0.01 per unit of risk. If you would invest  5,959  in The Coca Cola on September 12, 2024 and sell it today you would earn a total of  332.00  from holding The Coca Cola or generate 5.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	43.18%
Values	Daily Returns

The Coca Cola  vs.  COMMONWEALTH EDISON 47

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.

COMMONWEALTH EDISON

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COMMONWEALTH EDISON 47 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for COMMONWEALTH EDISON 47 investors.

Pair Trading with Coca Cola and COMMONWEALTH

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

The idea behind The Coca Cola and COMMONWEALTH EDISON 47 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.