Correlation Between Coca Cola and Innovation Pharmaceuticals

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

Diversification Opportunities for Coca Cola and Innovation Pharmaceuticals

-0.85

Correlation Coefficient

Coca Cola  Innovation Pharmaceuticals

Pay attention - limited upside

The 3 months correlation between Coca and Innovation is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Innovation Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovation Pharmaceuticals 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 Innovation Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovation Pharmaceuticals has no effect on the direction of Coca Cola i.e., Coca Cola and Innovation Pharmaceuticals go up and down completely randomly.

Pair Corralation between Coca Cola and Innovation Pharmaceuticals

Allowing for the 90-day total investment horizon Coca Cola is expected to generate 7.24 times less return on investment than Innovation Pharmaceuticals. But when comparing it to its historical volatility, The Coca Cola is 43.14 times less risky than Innovation Pharmaceuticals. It trades about 0.12 of its potential returns per unit of risk. Innovation Pharmaceuticals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1.32  in Innovation Pharmaceuticals on March 14, 2024 and sell it today you would lose (1.20) from holding Innovation Pharmaceuticals or give up 90.91% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

The Coca Cola  vs.  Innovation Pharmaceuticals

Coca Cola

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 9 (%) 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 newest stock price disarray, may contribute to short-term losses for the investors.

Innovation Pharmaceuticals

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Innovation Pharmaceuticals are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, Innovation Pharmaceuticals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and Innovation Pharmaceuticals

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

The idea behind The Coca Cola and Innovation Pharmaceuticals 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 the Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.