Correlation Between Coca Cola and Citigroup

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

Diversification Opportunities for Coca Cola and Citigroup

0.29
  Correlation Coefficient

Modest diversification

The 3 months correlation between Coca Cola and Citigroup is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Coca-Cola and Citigroup in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citigroup 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 Citigroup. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citigroup has no effect on the direction of Coca Cola i.e., Coca Cola and Citigroup go up and down completely randomly.

Pair Corralation between Coca Cola and Citigroup

Allowing for the 90-day total investment horizon Coca-Cola is expected to generate 0.58 times more return on investment than Citigroup. However, Coca-Cola is 1.73 times less risky than Citigroup. It trades about 0.06 of its potential returns per unit of risk. Citigroup is currently generating about 0.02 per unit of risk. If you would invest  4,552  in Coca-Cola on May 10, 2022 and sell it today you would earn a total of  1,807  from holding Coca-Cola or generate 39.7% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Coca-Cola  vs.  Citigroup

 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 current stock price mess, may contribute to short-term losses for the institutional investors.

Coca Cola Price Channel

Citigroup 
Citigroup Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Citigroup may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Citigroup Price Channel

Coca Cola and Citigroup Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Coca Cola and Citigroup

The main advantage of trading using opposite Coca Cola and Citigroup positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Citigroup 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 Citigroup will offset losses from the drop in Citigroup's long position.
The idea behind Coca-Cola and Citigroup 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.
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.

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