Correlation Between Coca Cola and Alcoa Corp

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

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

Diversification Opportunities for Coca Cola and Alcoa Corp

-0.07

Correlation Coefficient

Coca Cola  Alcoa Corp

Good diversification

The 3 months correlation between Coca and Alcoa is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp 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 The Coca Cola are associated (or correlated) with Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Coca Cola i.e., Coca Cola and Alcoa Corp go up and down completely randomly.

Pair Corralation between Coca Cola and Alcoa Corp

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the Alcoa Corp. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 3.88 times less risky than Alcoa Corp. The stock trades about -0.2 of its potential returns per unit of risk. The Alcoa Corp is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  2,967  in Alcoa Corp on January 19, 2024 and sell it today you would earn a total of  588.00  from holding Alcoa Corp or generate 19.82% return on investment over 90 days.

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

The Coca Cola  vs.  Alcoa Corp

Coca Cola

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Coca Cola has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Alcoa Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alcoa Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Alcoa Corp sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and Alcoa Corp

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

The idea behind The Coca Cola and Alcoa Corp 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.