Correlation Between Coca Cola and ARCA Biopharma

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

Diversification Opportunities for Coca Cola and ARCA Biopharma

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Coca Cola and ARCA Biopharma is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Coca-Cola Co and ARCA Biopharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARCA Biopharma 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 Coca-Cola Co are associated (or correlated) with ARCA Biopharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARCA Biopharma has no effect on the direction of Coca Cola i.e., Coca Cola and ARCA Biopharma go up and down completely randomly.

Pair Corralation between Coca Cola and ARCA Biopharma

Allowing for the 90-day total investment horizon Coca-Cola Co is expected to generate 0.39 times more return on investment than ARCA Biopharma. However, Coca-Cola Co is 2.57 times less risky than ARCA Biopharma. It trades about 0.4 of its potential returns per unit of risk. ARCA Biopharma is currently generating about 0.05 per unit of risk. If you would invest  5,884  in Coca-Cola Co on September 5, 2022 and sell it today you would earn a total of  551.00  from holding Coca-Cola Co or generate 9.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Coca-Cola Co  vs.  ARCA Biopharma

 Performance (%) 
       Timeline  
Coca-Cola 
Coca Cola Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Coca-Cola Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Coca Cola Price Channel

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

ARCA Biopharma Price Channel

Coca Cola and ARCA Biopharma Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Coca Cola and ARCA Biopharma

The main advantage of trading using opposite Coca Cola and ARCA Biopharma positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, ARCA Biopharma 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 ARCA Biopharma will offset losses from the drop in ARCA Biopharma's long position.
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The idea behind Coca-Cola Co and ARCA Biopharma 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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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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