Correlation Between Coca Cola and Microsoft

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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

0.56
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Coca and Microsoft is 0.56. 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 Coca Cola is expected to generate 1.57 times less return on investment than Microsoft. But when comparing it to its historical volatility, The Coca Cola is 2.26 times less risky than Microsoft. It trades about 0.17 of its potential returns per unit of risk. Microsoft is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  40,772  in Microsoft on December 30, 2023 and sell it today you would earn a total of  1,300  from holding Microsoft or generate 3.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

The Coca-Cola  vs.  Microsoft

 Performance 
       Timeline  
Coca-Cola 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
OK
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 latest stock price disarray, may contribute to short-term losses for the investors.
Microsoft 

Risk-Adjusted Performance

14 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Microsoft unveiled solid returns over the last few months and may actually be approaching a breakup point.

Coca Cola and Microsoft Volatility Contrast

   Predicted Return Density   
       Returns  

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.
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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