Correlation Between Coca Cola and Armour Residential

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

Diversification Opportunities for Coca Cola and Armour Residential

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Coca Cola and Armour is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Coca-Cola and Armour Residential R in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Armour Residential 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 are associated (or correlated) with Armour Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Armour Residential has no effect on the direction of Coca Cola i.e., Coca Cola and Armour Residential go up and down completely randomly.

Pair Corralation between Coca Cola and Armour Residential

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 2.69 times less return on investment than Armour Residential. But when comparing it to its historical volatility, Coca-Cola is 2.15 times less risky than Armour Residential. It trades about 0.21 of its potential returns per unit of risk. Armour Residential R is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  514.00  in Armour Residential R on August 28, 2022 and sell it today you would earn a total of  75.00  from holding Armour Residential R or generate 14.59% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Coca-Cola  vs.  Armour Residential R

 Performance (%) 
       Timeline  
Coca-Cola 
Coca Cola Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Coca-Cola are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Coca Cola is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Coca Cola Price Channel

Armour Residential 
Armour Performance
0 of 100
Over the last 90 days Armour Residential R has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Armour Price Channel

Coca Cola and Armour Residential Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Coca Cola and Armour Residential

The main advantage of trading using opposite Coca Cola and Armour Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Armour Residential 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 Armour Residential will offset losses from the drop in Armour Residential's long position.
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The idea behind Coca-Cola and Armour Residential R 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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