Correlation Between Coca Cola and Microsoft

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

Diversification Opportunities for Coca Cola and Microsoft

0.3

Correlation Coefficient

Coca Cola  Microsoft

Weak diversification

The 3 months correlation between Coca and Microsoft is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Coca Cola i.e., Coca Cola and Microsoft go up and down completely randomly.

Pair Corralation between Coca Cola and Microsoft

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the Microsoft. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 1.87 times less risky than Microsoft. The stock trades about -0.08 of its potential returns per unit of risk. The Microsoft is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  40,279  in Microsoft on January 20, 2024 and sell it today you would earn a total of  148.00  from holding Microsoft or generate 0.37% 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.  Microsoft

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.

Microsoft

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Coca Cola and Microsoft

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

The idea behind The Coca Cola and Microsoft 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.