Correlation Between Coca Cola and Blackberry

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

Diversification Opportunities for Coca Cola and Blackberry

0.38
  Correlation Coefficient

Weak diversification

The 3 months correlation between Coca Cola and Blackberry is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Coca-Cola and Blackberry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blackberry 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 Blackberry. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blackberry has no effect on the direction of Coca Cola i.e., Coca Cola and Blackberry go up and down completely randomly.

Pair Corralation between Coca Cola and Blackberry

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 7.64 times less return on investment than Blackberry. But when comparing it to its historical volatility, Coca-Cola is 3.07 times less risky than Blackberry. It trades about 0.1 of its potential returns per unit of risk. Blackberry is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  579.00  in Blackberry on May 14, 2022 and sell it today you would earn a total of  99.00  from holding Blackberry or generate 17.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Coca-Cola  vs.  Blackberry

 Performance (%) 
       Timeline  
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 quite persistent basic indicators, Coca Cola is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Coca Cola Price Channel

Blackberry 
Blackberry Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Blackberry are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Blackberry sustained solid returns over the last few months and may actually be approaching a breakup point.

Blackberry Price Channel

Coca Cola and Blackberry Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Coca Cola and Blackberry

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

Blackberry

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The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Blackberry as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Blackberry's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Blackberry's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Blackberry.
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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