Correlation Between Coca Cola and JP Morgan

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

Diversification Opportunities for Coca Cola and JP Morgan

0.2
  Correlation Coefficient

Modest diversification

The 3 months correlation between Coca Cola and JP Morgan is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Coca-Cola and JP Morgan Chase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JP Morgan Chase 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 JP Morgan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JP Morgan Chase has no effect on the direction of Coca Cola i.e., Coca Cola and JP Morgan go up and down completely randomly.

Pair Corralation between Coca Cola and JP Morgan

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 5.02 times less return on investment than JP Morgan. But when comparing it to its historical volatility, Coca-Cola is 1.75 times less risky than JP Morgan. It trades about 0.12 of its potential returns per unit of risk. JP Morgan Chase is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  10,800  in JP Morgan Chase on May 15, 2022 and sell it today you would earn a total of  1,413  from holding JP Morgan Chase or generate 13.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Coca-Cola  vs.  JP Morgan Chase

 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

JP Morgan Chase 
JP Morgan Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in JP Morgan Chase are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady basic indicators, JP Morgan is not utilizing all of its potentials. The new stock price chaos, may contribute to medium-term losses for the stakeholders.

JP Morgan Price Channel

Coca Cola and JP Morgan Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Coca Cola and JP Morgan

The main advantage of trading using opposite Coca Cola and JP Morgan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, JP Morgan 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 JP Morgan will offset losses from the drop in JP Morgan's long position.
The idea behind Coca-Cola and JP Morgan Chase 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 Watchlist Optimization module to optimize watchlists to build efficient portfolio or rebalance existing positions based on mean-variance optimization algorithm.

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