Correlation Between Microsoft Corp and Coca Cola

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

Diversification Opportunities for Microsoft Corp and Coca Cola

0.61
  Correlation Coefficient

Poor diversification

The 3 months correlation between Microsoft and Coca Cola is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp and Coca-Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca-Cola and Microsoft Corp 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 Microsoft Corp are associated (or correlated) with Coca Cola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coca-Cola has no effect on the direction of Microsoft Corp i.e., Microsoft Corp and Coca Cola go up and down completely randomly.

Pair Corralation between Microsoft Corp and Coca Cola

Given the investment horizon of 90 days Microsoft Corp is expected to generate 1.5 times more return on investment than Coca Cola. However, Microsoft Corp is 1.5 times more volatile than Coca-Cola. It trades about 0.05 of its potential returns per unit of risk. Coca-Cola is currently generating about 0.07 per unit of risk. If you would invest  20,977  in Microsoft Corp on May 13, 2022 and sell it today you would earn a total of  7,939  from holding Microsoft Corp or generate 37.85% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Microsoft Corp  vs.  Coca-Cola

 Performance (%) 
       Timeline  
Microsoft Corp 
Microsoft Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Microsoft Corp may actually be approaching a critical reversion point that can send shares even higher in September 2022.

Microsoft Price Channel

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

Microsoft Corp and Coca Cola Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Microsoft Corp and Coca Cola

The main advantage of trading using opposite Microsoft Corp and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp position performs unexpectedly, Coca Cola 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 Coca Cola will offset losses from the drop in Coca Cola's long position.
The idea behind Microsoft Corp and Coca-Cola 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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