Correlation Between Coca Cola and Arca Continental

Can any of the company-specific risk be diversified away by investing in both Coca Cola and Arca Continental 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 Arca Continental 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 Arca Continental SAB, you can compare the effects of market volatilities on Coca Cola and Arca Continental 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 Arca Continental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Arca Continental.

Diversification Opportunities for Coca Cola and Arca Continental

0.34

Correlation Coefficient

Coca Cola  Arca Continental

Weak diversification

The 3 months correlation between Coca and Arca is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Arca Continental SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arca Continental SAB 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 Arca Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arca Continental SAB has no effect on the direction of Coca Cola i.e., Coca Cola and Arca Continental go up and down completely randomly.

Pair Corralation between Coca Cola and Arca Continental

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 1.24 times less return on investment than Arca Continental. But when comparing it to its historical volatility, The Coca Cola is 2.09 times less risky than Arca Continental. It trades about 0.04 of its potential returns per unit of risk. Arca Continental SAB is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  972.00  in Arca Continental SAB on January 25, 2024 and sell it today you would earn a total of  48.00  from holding Arca Continental SAB or generate 4.94% return on investment over 90 days.

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

The Coca Cola  vs.  Arca Continental SAB

Coca Cola

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 5 (%) 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.

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.

Pair Trading with Coca Cola and Arca Continental

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

The idea behind The Coca Cola and Arca Continental 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.