Correlation Between Coca Cola and Cathay Financial

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

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

Diversification Opportunities for Coca Cola and Cathay Financial

0.58

Correlation Coefficient

Coca Cola  Cathay Financial

Very weak diversification

The 3 months correlation between Coca and Cathay is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Cathay Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Financial Holding 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 The Coca Cola are associated (or correlated) with Cathay Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Financial Holding has no effect on the direction of Coca Cola i.e., Coca Cola and Cathay Financial go up and down completely randomly.

Pair Corralation between Coca Cola and Cathay Financial

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 5.99 times more return on investment than Cathay Financial. However, Coca Cola is 5.99 times more volatile than Cathay Financial Holding. It trades about 0.05 of its potential returns per unit of risk. Cathay Financial Holding is currently generating about 0.07 per unit of risk. If you would invest  5,194  in The Coca Cola on February 1, 2024 and sell it today you would earn a total of  983.00  from holding The Coca Cola or generate 18.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	48.08%
Values	Daily Returns

The Coca Cola  vs.  Cathay Financial Holding

Coca Cola

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Coca Cola is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cathay Financial Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cathay Financial Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Cathay Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Coca Cola and Cathay Financial

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

The idea behind The Coca Cola and Cathay Financial Holding 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.