Correlation Between Apple and Coca Cola

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

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

Diversification Opportunities for Apple and Coca Cola

0.36

Correlation Coefficient

Apple  Coca Cola

Weak diversification

The 3 months correlation between Apple and Coca is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and Apple 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 Apple Inc 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 has no effect on the direction of Apple i.e., Apple and Coca Cola go up and down completely randomly.

Pair Corralation between Apple and Coca Cola

Given the investment horizon of 90 days Apple Inc is expected to generate 2.78 times more return on investment than Coca Cola. However, Apple is 2.78 times more volatile than The Coca Cola. It trades about 0.33 of its potential returns per unit of risk. The Coca Cola is currently generating about 0.65 per unit of risk. If you would invest  16,915  in Apple Inc on February 16, 2024 and sell it today you would earn a total of  2,057  from holding Apple Inc or generate 12.16% return on investment over 90 days.

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

Apple Inc  vs.  The Coca Cola

Apple Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Apple is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Coca Cola

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Apple and Coca Cola

The main advantage of trading using opposite Apple and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc and The Coca Cola 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.