Correlation Between Coca Cola and Meta Platforms

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

Diversification Opportunities for Coca Cola and Meta Platforms

-0.01
  Correlation Coefficient

Good diversification

The 3 months correlation between Coca Cola and Meta Platforms is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Coca-Cola and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Coca Cola i.e., Coca Cola and Meta Platforms go up and down completely randomly.

Pair Corralation between Coca Cola and Meta Platforms

Allowing for the 90-day total investment horizon Coca-Cola is expected to generate 0.45 times more return on investment than Meta Platforms. However, Coca-Cola is 2.23 times less risky than Meta Platforms. It trades about 0.06 of its potential returns per unit of risk. Meta Platforms is currently generating about 0.0 per unit of risk. If you would invest  4,497  in Coca-Cola on February 24, 2022 and sell it today you would earn a total of  1,905  from holding Coca-Cola or generate 42.36% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Coca-Cola  vs.  Meta Platforms

 Performance (%) 
      Timeline 
Coca-Cola 
Coca Cola Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Coca-Cola are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in June 2022.

Coca Cola Price Channel

Meta Platforms 
Meta Platforms Performance
0 of 100
Over the last 90 days Meta Platforms has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Meta Platforms Price Channel

Coca Cola and Meta Platforms Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with Coca Cola and Meta Platforms

The main advantage of trading using opposite Coca Cola and Meta Platforms positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, Meta Platforms 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 Meta Platforms will offset losses from the drop in Meta Platforms' long position.
The idea behind Coca-Cola and Meta Platforms 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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