Correlation Between Constellation Brands and Coca Cola

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Can any of the company-specific risk be diversified away by investing in both Constellation Brands 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 Constellation Brands and Coca Cola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Constellation Brands Class and The Coca Cola, you can compare the effects of market volatilities on Constellation Brands 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 Constellation Brands with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Brands and Coca Cola.

Diversification Opportunities for Constellation Brands and Coca Cola

0.69
  Correlation Coefficient

Poor diversification

The 3 months correlation between Constellation and Coca is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Brands Class and The Coca-Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca-Cola and Constellation Brands 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 Constellation Brands Class 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 has no effect on the direction of Constellation Brands i.e., Constellation Brands and Coca Cola go up and down completely randomly.

Pair Corralation between Constellation Brands and Coca Cola

Considering the 90-day investment horizon Constellation Brands Class is expected to generate 1.32 times more return on investment than Coca Cola. However, Constellation Brands is 1.32 times more volatile than The Coca Cola. It trades about 0.03 of its potential returns per unit of risk. The Coca Cola is currently generating about 0.01 per unit of risk. If you would invest  24,066  in Constellation Brands Class on December 30, 2023 and sell it today you would earn a total of  3,110  from holding Constellation Brands Class or generate 12.92% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Constellation Brands Class  vs.  The Coca-Cola

 Performance 
       Timeline  
Constellation Brands 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Brands Class are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Constellation Brands may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Coca-Cola 

Risk-Adjusted Performance

5 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 5 (%) 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 latest stock price disarray, may contribute to short-term losses for the investors.

Constellation Brands and Coca Cola Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Constellation Brands and Coca Cola

The main advantage of trading using opposite Constellation Brands and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Constellation Brands 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 Constellation Brands Class and The Coca Cola 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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