Correlation Between Coca Cola and Nike

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

Diversification Opportunities for Coca Cola and Nike

0.04

Correlation Coefficient

Coca Cola  Nike

Significant diversification

The 3 months correlation between Coca and Nike is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc 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 Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Coca Cola i.e., Coca Cola and Nike go up and down completely randomly.

Pair Corralation between Coca Cola and Nike

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 0.33 times more return on investment than Nike. However, The Coca Cola is 3.03 times less risky than Nike. It trades about -0.22 of its potential returns per unit of risk. Nike Inc is currently generating about -0.1 per unit of risk. If you would invest  6,075  in The Coca Cola on January 20, 2024 and sell it today you would lose (184.00) from holding The Coca Cola or give up 3.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

The Coca Cola  vs.  Nike Inc

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.

Nike Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Coca Cola and Nike

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

The idea behind The Coca Cola and Nike Inc 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 Stocks Directory module to find actively traded stocks across global markets.