Correlation Between Ab Small and Coca Cola

Can any of the company-specific risk be diversified away by investing in both Ab Small and Coca Cola 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 Ab Small and Coca Cola into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ab Small Cap and Coca Cola Femsa SAB, you can compare the effects of market volatilities on Ab Small and Coca Cola 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 Ab Small with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ab Small and Coca Cola.

Diversification Opportunities for Ab Small and Coca Cola

0.08

Correlation Coefficient

Ab Small  Coca Cola

Significant diversification

The 3 months correlation between QUAZX and Coca is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Ab Small Cap and Coca Cola Femsa SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola Femsa and Ab Small 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 Ab Small Cap are associated (or correlated) with Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca Cola Femsa has no effect on the direction of Ab Small i.e., Ab Small and Coca Cola go up and down completely randomly.

Pair Corralation between Ab Small and Coca Cola

Assuming the 90 days horizon Ab Small Cap is expected to generate 0.76 times more return on investment than Coca Cola. However, Ab Small Cap is 1.32 times less risky than Coca Cola. It trades about -0.14 of its potential returns per unit of risk. Coca Cola Femsa SAB is currently generating about -0.5 per unit of risk. If you would invest  6,711  in Ab Small Cap on March 19, 2024 and sell it today you would lose (193.00) from holding Ab Small Cap or give up 2.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Ab Small Cap  vs.  Coca Cola Femsa SAB

Ab Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ab Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Ab Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Coca Cola Femsa

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coca Cola Femsa SAB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ab Small and Coca Cola

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

The idea behind Ab Small Cap and Coca Cola Femsa SAB 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.