Correlation Between Reeds and Coca Cola

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

By analyzing existing cross correlation between Reeds Inc and Coca Cola Femsa SAB, you can compare the effects of market volatilities on Reeds 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 Reeds with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reeds and Coca Cola.

Diversification Opportunities for Reeds and Coca Cola

-0.08

Correlation Coefficient

Reeds  Coca Cola

Good diversification

The 3 months correlation between Reeds and Coca is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Reeds Inc and Coca Cola Femsa SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola Femsa and Reeds 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 Reeds Inc 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 Femsa has no effect on the direction of Reeds i.e., Reeds and Coca Cola go up and down completely randomly.

Pair Corralation between Reeds and Coca Cola

If you would invest  9,524  in Coca Cola Femsa SAB on February 1, 2024 and sell it today you would earn a total of  391.00  from holding Coca Cola Femsa SAB or generate 4.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	4.55%
Values	Daily Returns

Reeds Inc  vs.  Coca Cola Femsa SAB

Reeds Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reeds Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Reeds is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Coca Cola Femsa

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Coca Cola Femsa SAB are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Coca Cola is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Reeds and Coca Cola

The main advantage of trading using opposite Reeds and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reeds 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 Reeds Inc and Coca Cola Femsa SAB 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.