Coca Cola’s decision to sponsor the Euro 2020 soccer tournament appeared to be an “own-goal” after star player, Cristiano Ronaldo, seemingly wiped US $4 billion off the company’s share price.

During a post-game press conference the Juventus forward and Portugal national captain pushed aside two bottles of Coca Cola, placed by the sponsor next to the microphone and told assembled journalists to instead drink water.

Ronaldo’s tongue-in-cheek gesture was met kindly by the drinks giant which, in a statement, said “everyone is entitled to their drink preferences”.

Investors, however, appeared much less impressed. 

Shortly after the stunt shares in Coca Cola dropped 1.6%, dragging the business’ market value from $242 billion down to $238 billion, and headlines were quick to point the finger at Ronaldo’s slight. 

In the days that followed, Coca Cola’s price has continued to go down faster than a glass of its namesake product on a hot, summery day.

At the time of writing, the company’s shares had given up a further 1.41% since Ronaldo accidentally scored against the beverage behemoth’s marketing team.

In that same period of time, however, the Global X Health and Wellness ETF (NYSE: BFIT) has trended in the opposite direction, gaining 5.36%.

In fact, a screenshot of both entities’ price history for the past month shows both hit something of an inflection point on 16 June.

Coca Cola Co (NYSE: KO) share price June to date:

Global X BFIT ETF (NYSE: BFIT) share price June to date:

Sources: Yahoo Finance

So, does this mean Ronaldo’s soda snub gave health and wellness stocks a brief sugar hit? Here’s a hint: the answer is no. 

Causation vs correlation

A quick look at the two graphs above seems to show that as the value of Coca Cola Co diminishes, the value of the Global X BFIT ETF rises – these two data sets look to be correlated (at least over the ludicrously small time period chosen for this example).

In some cases, correlation can be useful for investors, particularly as they apply to intermarket relationships – for example, the relationships between bonds, share markets, and commodity prices can provide early warning signs of a potential reversal.

But crucially, correlation does not mean there is a causal relationship between those two data sets.

To prove that point, researchers at Morningstar tracked the performance of Canada’s S&P Toronto Stock Exchange between 1994 and 2017 and found the index’ performance during that time had an 87% correlation to the production of butter in Brazil.

What they didn’t find, however, was any evidence to suggest Brazilian butter barons were somehow manipulating the S&P TSX with their churns.

Instead, the data showed the power of ‘trended variables’, or as Morningstar’s team put it:

“Over any period of time, if two variables are trending upward, such as a stock market index and production in a growing dairy industry, they are positively correlated, even if there is no causal link between them.”

Back to Ronaldo – while the falling price of Coca Cola shares seems correlated with the success of the BFIT fund, that doesn’t mean there’s any link between the two.,

More pressingly, there’s even some doubt as to whether Ronaldo’s actions had any impact on Coca Cola’s share price at all.

The company opened 0.9% lower at the start of trade at 9:30 EST following a trend set by the rest of the US market, and by 9:40 EST news the company had gone ex-dividend helped push its price down 1.6% (US $4 billion) on the previous day’s close.

Then, at 9:43 EST, Ronaldo made his now infamous anti-cola stand. Adding to the confusion is the fact share price data is typically published 20 minutes after market movements.

This means journalists would not have seen Coca Cola’s share price move until after Ronaldo brushed the bottles aside.

The two events were correlated, but one is very unlikely to have caused the other.

Sources:

• espn.com: Cristiano Ronaldo snub sees Coca-Cola market value fall by $4bn
• Yahoo Finance: Global X Health & Wellness ETF (BFIT)
• Forbes: A Post-Truth World: Why Ronaldo Did Not Move Coca-Cola Share Price
• Investopedia: Identifying Market Trends
• Investopedia: Intermarket Relationships: Following the Cycle
• Morningstar: Don’t Confuse Correlation and Causation
• Sportico: NO, RONALDO DIDN’T WIPE BILLIONS FROM COKE’S VALUE