Correlation Between Coca Cola and GE Aerospace

Can any of the company-specific risk be diversified away by investing in both Coca Cola and GE Aerospace 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 GE Aerospace 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 GE Aerospace, you can compare the effects of market volatilities on Coca Cola and GE Aerospace 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 GE Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and GE Aerospace.

Diversification Opportunities for Coca Cola and GE Aerospace

0.51

Correlation Coefficient

Coca Cola  GE Aerospace

Very weak diversification

The 3 months correlation between Coca and GE Aerospace is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and GE Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GE Aerospace 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 GE Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GE Aerospace has no effect on the direction of Coca Cola i.e., Coca Cola and GE Aerospace go up and down completely randomly.

Pair Corralation between Coca Cola and GE Aerospace

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 0.23 times more return on investment than GE Aerospace. However, The Coca Cola is 4.38 times less risky than GE Aerospace. It trades about 0.74 of its potential returns per unit of risk. GE Aerospace is currently generating about 0.08 per unit of risk. If you would invest  5,814  in The Coca Cola on February 14, 2024 and sell it today you would earn a total of  544.00  from holding The Coca Cola or generate 9.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

The Coca Cola  vs.  GE Aerospace

Coca Cola

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in June 2024.

GE Aerospace

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GE Aerospace are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, GE Aerospace exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and GE Aerospace

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

The idea behind The Coca Cola and GE Aerospace 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.