Correlation Between Coca Cola and Vanguard FTSE

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

Diversification Opportunities for Coca Cola and Vanguard FTSE

0.44

Correlation Coefficient

Coca Cola  Vanguard FTSE

Very weak diversification

The 3 months correlation between Coca and Vanguard is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Vanguard FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Developed 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 Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Developed has no effect on the direction of Coca Cola i.e., Coca Cola and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Coca Cola and Vanguard FTSE

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 1.15 times more return on investment than Vanguard FTSE. However, Coca Cola is 1.15 times more volatile than Vanguard FTSE Developed. It trades about 0.03 of its potential returns per unit of risk. Vanguard FTSE Developed is currently generating about -0.12 per unit of risk. If you would invest  6,040  in The Coca Cola on January 25, 2024 and sell it today you would earn a total of  24.00  from holding The Coca Cola or generate 0.4% return on investment over 90 days.

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

The Coca Cola  vs.  Vanguard FTSE Developed

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.

Vanguard FTSE Developed

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Developed are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Vanguard FTSE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Coca Cola and Vanguard FTSE

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

The idea behind The Coca Cola and Vanguard FTSE Developed 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.