Correlation Between Arca Continental and Coca Cola

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

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

Diversification Opportunities for Arca Continental and Coca Cola

0.52

Correlation Coefficient

Arca Continental  Coca Cola

Very weak diversification

The 3 months correlation between Arca and Coca is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Arca Continental SAB and Coca Cola Femsa SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola Femsa and Arca Continental 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 Arca Continental SAB 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 Femsa has no effect on the direction of Arca Continental i.e., Arca Continental and Coca Cola go up and down completely randomly.

Pair Corralation between Arca Continental and Coca Cola

Assuming the 90 days horizon Arca Continental SAB is expected to under-perform the Coca Cola. In addition to that, Arca Continental is 1.18 times more volatile than Coca Cola Femsa SAB. It trades about -0.18 of its total potential returns per unit of risk. Coca Cola Femsa SAB is currently generating about 0.06 per unit of volatility. If you would invest  9,415  in Coca Cola Femsa SAB on January 25, 2024 and sell it today you would earn a total of  144.00  from holding Coca Cola Femsa SAB or generate 1.53% return on investment over 90 days.

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

Arca Continental SAB  vs.  Coca Cola Femsa SAB

Arca Continental SAB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arca Continental SAB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Arca Continental is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Coca Cola Femsa

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola Femsa SAB are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Arca Continental and Coca Cola

The main advantage of trading using opposite Arca Continental and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arca Continental 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 Arca Continental SAB and Coca Cola Femsa SAB 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.