Correlation Between Coca Cola and Petroleo Brasileiro

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

By analyzing existing cross correlation between Coca Cola European Partners and Petroleo Brasileiro Petrobras, you can compare the effects of market volatilities on Coca Cola and Petroleo Brasileiro 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 Petroleo Brasileiro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Petroleo Brasileiro.

Diversification Opportunities for Coca Cola and Petroleo Brasileiro

-0.09

Correlation Coefficient

Coca Cola  Petroleo Brasileiro

Good diversification

The 3 months correlation between Coca and Petroleo is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Coca Cola European Partners and Petroleo Brasileiro Petrobras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petroleo Brasileiro 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 Coca Cola European Partners are associated (or correlated) with Petroleo Brasileiro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petroleo Brasileiro has no effect on the direction of Coca Cola i.e., Coca Cola and Petroleo Brasileiro go up and down completely randomly.

Pair Corralation between Coca Cola and Petroleo Brasileiro

Given the investment horizon of 90 days Coca Cola European Partners is expected to generate 0.49 times more return on investment than Petroleo Brasileiro. However, Coca Cola European Partners is 2.05 times less risky than Petroleo Brasileiro. It trades about 0.18 of its potential returns per unit of risk. Petroleo Brasileiro Petrobras is currently generating about 0.04 per unit of risk. If you would invest  6,555  in Coca Cola European Partners on February 13, 2024 and sell it today you would earn a total of  828.00  from holding Coca Cola European Partners or generate 12.63% return on investment over 90 days.

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

Coca Cola European Partners  vs.  Petroleo Brasileiro Petrobras

Coca Cola European

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola European Partners are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Petroleo Brasileiro

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Petroleo Brasileiro Petrobras are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Petroleo Brasileiro is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Coca Cola and Petroleo Brasileiro

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

The idea behind Coca Cola European Partners and Petroleo Brasileiro Petrobras 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.