Correlation Between Coca Cola and Melcor Developments

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

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

Diversification Opportunities for Coca Cola and Melcor Developments

-0.41

Correlation Coefficient

Coca Cola  Melcor Developments

Very good diversification

The 3 months correlation between Coca and Melcor is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Coca Cola CDR and Melcor Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melcor Developments 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 Coca Cola CDR are associated (or correlated) with Melcor Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melcor Developments has no effect on the direction of Coca Cola i.e., Coca Cola and Melcor Developments go up and down completely randomly.

Pair Corralation between Coca Cola and Melcor Developments

Assuming the 90 days trading horizon Coca Cola CDR is expected to under-perform the Melcor Developments. But the stock apears to be less risky and, when comparing its historical volatility, Coca Cola CDR is 1.48 times less risky than Melcor Developments. The stock trades about -0.06 of its potential returns per unit of risk. The Melcor Developments is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,184  in Melcor Developments on May 5, 2025 and sell it today you would earn a total of  246.00  from holding Melcor Developments or generate 20.78% return on investment over 90 days.

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

Coca Cola CDR  vs.  Melcor Developments

Coca Cola CDR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Coca Cola CDR has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Melcor Developments

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Melcor Developments are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Melcor Developments displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Coca Cola and Melcor Developments

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

The idea behind Coca Cola CDR and Melcor Developments 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.