Correlation Between Coca Cola and Small Capitalization

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

Diversification Opportunities for Coca Cola and Small Capitalization

-0.29

Correlation Coefficient

Coca Cola  Small Capitalization

Very good diversification

The 3 months correlation between Coca and Small is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Small Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Capitalization 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 Small Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Capitalization has no effect on the direction of Coca Cola i.e., Coca Cola and Small Capitalization go up and down completely randomly.

Pair Corralation between Coca Cola and Small Capitalization

Allowing for the 90-day total investment horizon The Coca Cola is expected to under-perform the Small Capitalization. But the stock apears to be less risky and, when comparing its historical volatility, The Coca Cola is 1.44 times less risky than Small Capitalization. The stock trades about -0.05 of its potential returns per unit of risk. The Small Capitalization Portfolio is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  34.00  in Small Capitalization Portfolio on May 4, 2025 and sell it today you would earn a total of  3.00  from holding Small Capitalization Portfolio or generate 8.82% return on investment over 90 days.

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

The Coca Cola  vs.  Small Capitalization Portfolio

Coca Cola

Risk-Adjusted Performance

Very Weak

Over the last 90 days The Coca Cola 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 recent stock price disarray, may contribute to short-term losses for the investors.

Small Capitalization

Risk-Adjusted Performance

OK

Over the last 90 days Small Capitalization Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak fundamental indicators, Small Capitalization may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Coca Cola and Small Capitalization

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

The idea behind The Coca Cola and Small Capitalization Portfolio 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..