Correlation Between General Electric and Coca Cola

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Can any of the company-specific risk be diversified away by investing in both General Electric 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 General Electric and Coca Cola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Electric and The Coca Cola, you can compare the effects of market volatilities on General Electric 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 General Electric with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and Coca Cola.

Diversification Opportunities for General Electric and Coca Cola

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between General and Coca is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and The Coca-Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca-Cola and General Electric 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 General Electric 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 General Electric i.e., General Electric and Coca Cola go up and down completely randomly.

Pair Corralation between General Electric and Coca Cola

Allowing for the 90-day total investment horizon General Electric is expected to generate 1.91 times more return on investment than Coca Cola. However, General Electric is 1.91 times more volatile than The Coca Cola. It trades about 0.07 of its potential returns per unit of risk. The Coca Cola is currently generating about 0.01 per unit of risk. If you would invest  9,466  in General Electric on December 6, 2023 and sell it today you would earn a total of  6,635  from holding General Electric or generate 70.09% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  The Coca-Cola

 Performance 
       Timeline  
General Electric 

Risk-Adjusted Performance

36 of 100

 
Low
 
High
Very Strong
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 36 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, General Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.
Coca-Cola 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 3 (%) 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.

General Electric and Coca Cola Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Coca Cola

The main advantage of trading using opposite General Electric and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric 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 General Electric 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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