Correlation Between American Express and Coca Cola

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

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

Diversification Opportunities for American Express and Coca Cola

0.43

Correlation Coefficient

American Express  Coca Cola

Very weak diversification

The 3 months correlation between American and Coca is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding American Express and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and American Express 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 American Express 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 American Express i.e., American Express and Coca Cola go up and down completely randomly.

Pair Corralation between American Express and Coca Cola

Considering the 90-day investment horizon American Express is expected to generate 2.01 times more return on investment than Coca Cola. However, American Express is 2.01 times more volatile than The Coca Cola. It trades about 0.18 of its potential returns per unit of risk. The Coca Cola is currently generating about 0.1 per unit of risk. If you would invest  22,533  in American Express on January 25, 2024 and sell it today you would earn a total of  1,517  from holding American Express or generate 6.73% return on investment over 90 days.

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

American Express  vs.  The Coca Cola

American Express

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Express are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, American Express reported solid returns over the last few months and may actually be approaching a breakup point.

Coca Cola

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Coca Cola is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with American Express and Coca Cola

The main advantage of trading using opposite American Express and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express 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 American Express 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.

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.