Correlation Between Diageo Plc and Coca Cola

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Can any of the company-specific risk be diversified away by investing in both Diageo Plc 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 Diageo Plc and Coca Cola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diageo Plc ADR and Coca-Cola, you can compare the effects of market volatilities on Diageo Plc 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 Diageo Plc with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo Plc and Coca Cola.

Diversification Opportunities for Diageo Plc and Coca Cola

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Diageo and Coca Cola is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Diageo Plc ADR and Coca-Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca-Cola and Diageo Plc 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 Diageo Plc ADR 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 has no effect on the direction of Diageo Plc i.e., Diageo Plc and Coca Cola go up and down completely randomly.

Pair Corralation between Diageo Plc and Coca Cola

Considering the 90-day investment horizon Diageo Plc ADR is expected to generate 1.24 times more return on investment than Coca Cola. However, Diageo Plc is 1.24 times more volatile than Coca-Cola. It trades about 0.04 of its potential returns per unit of risk. Coca-Cola is currently generating about 0.04 per unit of risk. If you would invest  13,650  in Diageo Plc ADR on June 26, 2022 and sell it today you would earn a total of  3,039  from holding Diageo Plc ADR or generate 22.26% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Diageo Plc ADR  vs.  Coca-Cola

 Performance (%) 
       Timeline  
Diageo Plc ADR 
Diageo Performance
0 of 100
Over the last 90 days Diageo Plc ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Diageo Price Channel

Coca-Cola 
Coca Cola Performance
0 of 100
Over the last 90 days Coca-Cola has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Coca Cola Price Channel

Diageo Plc and Coca Cola Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Diageo Plc and Coca Cola

The main advantage of trading using opposite Diageo Plc and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo Plc 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.
Diageo Plc vs. Industrias Bachoco SA
The idea behind Diageo Plc ADR and Coca-Cola 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.
Coca Cola vs. Industrias Bachoco SA
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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