Correlation Between Rocky Mountain and Coca Cola

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

By analyzing existing cross correlation between Rocky Mountain High and Coca Cola Consolidated, you can compare the effects of market volatilities on Rocky Mountain and Coca Cola 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 Rocky Mountain with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocky Mountain and Coca Cola.

Diversification Opportunities for Rocky Mountain and Coca Cola

0.03

Correlation Coefficient

Rocky Mountain  Coca Cola

Significant diversification

The 3 months correlation between Rocky and Coca is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain High and Coca Cola Consolidated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola Consolidated and Rocky Mountain 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 Rocky Mountain High are associated (or correlated) with Coca Cola. 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 Consolidated has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and Coca Cola go up and down completely randomly.

Pair Corralation between Rocky Mountain and Coca Cola

Given the investment horizon of 90 days Rocky Mountain High is expected to generate 18.62 times more return on investment than Coca Cola. However, Rocky Mountain is 18.62 times more volatile than Coca Cola Consolidated. It trades about 0.13 of its potential returns per unit of risk. Coca Cola Consolidated is currently generating about -0.06 per unit of risk. If you would invest  1.01  in Rocky Mountain High on September 27, 2024 and sell it today you would lose (0.21) from holding Rocky Mountain High or give up 20.79% of portfolio value over 90 days.

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

Rocky Mountain High  vs.  Coca Cola Consolidated

Rocky Mountain High

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain High are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Rocky Mountain sustained solid returns over the last few months and may actually be approaching a breakup point.

Coca Cola Consolidated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coca Cola Consolidated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Coca Cola is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Rocky Mountain and Coca Cola

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

The idea behind Rocky Mountain High and Coca Cola Consolidated 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.

Check out your portfolio center.

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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.