# Correlation Between Coca Cola and 3M

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Can any of the company-specific risk be diversified away by investing in both Coca Cola and 3M 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 3M 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 3M Company, you can compare the effects of market volatilities on Coca Cola and 3M 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 3M. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and 3M.

## Diversification Opportunities for Coca Cola and 3M

 -0.23 Correlation Coefficient

### Very good diversification

The 3 months correlation between Coca and 3M is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding The Coca-Cola and 3M Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3M Company 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 3M. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3M Company has no effect on the direction of Coca Cola i.e., Coca Cola and 3M go up and down completely randomly.

## Pair Corralation between Coca Cola and 3M

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 1.0 times more return on investment than 3M. However, The Coca Cola is 1.0 times less risky than 3M. It trades about 0.06 of its potential returns per unit of risk. 3M Company is currently generating about -0.24 per unit of risk. If you would invest  5,973  in The Coca Cola on November 30, 2023 and sell it today you would earn a total of  61.00  from holding The Coca Cola or generate 1.02% return on investment over 90 days.
 Time Period 3 Months [change] Direction Moves Against Strength Insignificant Accuracy 95.45% Values Daily Returns

## The Coca-Cola  vs.  3M Company

 Performance
 Timeline
 Coca-Cola Correlation Profile

### 5 of 100

 Low High
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 recent stock price disarray, may contribute to short-term losses for the investors.
 Performance Backtest Predict
 3M Company Correlation Profile

### 0 of 100

 Low High
Very Weak
Over the last 90 days 3M Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
 Performance Backtest Predict

## Coca Cola and 3M Volatility Contrast

 Predicted Return Density
 Returns

## Pair Trading with Coca Cola and 3M

The main advantage of trading using opposite Coca Cola and 3M positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, 3M 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 3M will offset losses from the drop in 3M's long position.
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The idea behind The Coca Cola and 3M Company 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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