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Pair CorrelationComparison
Can any of the company-specific risk be diversified away by investing in both PepsiCo 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 PepsiCo and Coca Cola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PepsiCo and The Coca Cola, you can compare the effects of market volatilities on PepsiCo 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 PepsiCo with a short position of Coca Cola. Check out your portfolio center. Please also check ongoing floating volatility patterns of PepsiCo and Coca Cola.
Diversification Opportunities for PepsiCo and Coca Cola
0.86 | Correlation Coefficient | PepsiCo Coca Cola |
Very poor diversification
The 3 months correlation between PepsiCo and Coca is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and The Coca Cola in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coca Cola and PepsiCo 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 PepsiCo 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 PepsiCo i.e., PepsiCo and Coca Cola go up and down completely randomly.
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Pair Corralation between PepsiCo and Coca Cola
Considering the 90-day investment horizon PepsiCo is expected to under-perform the Coca Cola. In addition to that, PepsiCo is 1.99 times more volatile than The Coca Cola. It trades about -0.12 of its total potential returns per unit of risk. The Coca Cola is currently generating about 0.01 per unit of volatility. If you would invest 6,193 in The Coca Cola on March 2, 2024 and sell it today you would earn a total of 4.00 from holding The Coca Cola or generate 0.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PepsiCovs.The Coca Cola
Performance
| Timeline |
| PepsiCo | Correlation | Profile |
Risk-Adjusted Performance
3 of 100
Weak | Strong |
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in PepsiCo are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, PepsiCo is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.
...more
Performance | Backtest | Predict |
| Coca Cola | Correlation | Profile |
Risk-Adjusted Performance
8 of 100
Weak | Strong |
OK
Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 8 (%) 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 newest stock price disarray, may contribute to short-term losses for the investors.
...more
Performance | Backtest | Predict |
PepsiCo and Coca Cola Volatility Contrast
Predicted Return Density
| Returns |
Pair Trading with PepsiCo and Coca Cola
The main advantage of trading using opposite PepsiCo and Coca Cola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PepsiCo 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.
| PepsiCo vs. Monster Beverage Corp | PepsiCo vs. Celsius Holdings | PepsiCo vs. Vita Coco | PepsiCo vs. Primo Water Corp |
The idea behind PepsiCo 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.
| Coca Cola vs. Monster Beverage Corp | Coca Cola vs. Celsius Holdings | Coca Cola vs. Vita Coco | Coca Cola vs. Primo Water Corp |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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