Correlation Between Coca Cola and Imperial Oil

Can any of the company-specific risk be diversified away by investing in both Coca Cola and Imperial Oil 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 Imperial Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Coca Cola Consolidated and Imperial Oil, you can compare the effects of market volatilities on Coca Cola and Imperial Oil 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 Imperial Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Imperial Oil.

Diversification Opportunities for Coca Cola and Imperial Oil

0.14

Correlation Coefficient

Coca Cola  Imperial Oil

Average diversification

The 3 months correlation between Coca and Imperial is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Coca Cola Consolidated and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil 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 Consolidated are associated (or correlated) with Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of Coca Cola i.e., Coca Cola and Imperial Oil go up and down completely randomly.

Pair Corralation between Coca Cola and Imperial Oil

Given the investment horizon of 90 days Coca Cola Consolidated is expected to generate 1.09 times more return on investment than Imperial Oil. However, Coca Cola is 1.09 times more volatile than Imperial Oil. It trades about 0.06 of its potential returns per unit of risk. Imperial Oil is currently generating about 0.06 per unit of risk. If you would invest  55,604  in Coca Cola Consolidated on March 2, 2024 and sell it today you would earn a total of  40,988  from holding Coca Cola Consolidated or generate 73.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.79%
Values	Daily Returns

Coca Cola Consolidated  vs.  Imperial Oil

Coca Cola Consolidated

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola Consolidated are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward-looking signals, Coca Cola exhibited solid returns over the last few months and may actually be approaching a breakup point.

Imperial Oil

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile primary indicators, Imperial Oil may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Coca Cola and Imperial Oil

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

The idea behind Coca Cola Consolidated and Imperial Oil 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.

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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 the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.