Correlation Between Coca Cola and PepsiCo
Can any of the company-specific risk be diversified away by investing in both Coca Cola and PepsiCo 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 PepsiCo 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 PepsiCo, you can compare the effects of market volatilities on Coca Cola and PepsiCo 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 PepsiCo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and PepsiCo.
Diversification Opportunities for Coca Cola and PepsiCo
Very weak diversification
The 3 months correlation between Coca and PepsiCo is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo 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 PepsiCo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PepsiCo has no effect on the direction of Coca Cola i.e., Coca Cola and PepsiCo go up and down completely randomly.
Pair Corralation between Coca Cola and PepsiCo
Allowing for the 90-day total investment horizon Coca Cola is expected to generate 1.58 times less return on investment than PepsiCo. But when comparing it to its historical volatility, The Coca Cola is 1.51 times less risky than PepsiCo. It trades about 0.07 of its potential returns per unit of risk. PepsiCo is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 17,357 in PepsiCo on January 27, 2024 and sell it today you would earn a total of 311.00 from holding PepsiCo or generate 1.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Coca Cola vs. PepsiCo
Performance |
| Timeline |
| Coca Cola |
| PepsiCo |
Coca Cola and PepsiCo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coca Cola and PepsiCo
The main advantage of trading using opposite Coca Cola and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola position performs unexpectedly, PepsiCo 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 PepsiCo will offset losses from the drop in PepsiCo's long position.| Coca Cola vs. Aquagold International | Coca Cola vs. Morningstar Unconstrained Allocation | Coca Cola vs. Thrivent High Yield | Coca Cola vs. Via Renewables |
| PepsiCo vs. Aquagold International | PepsiCo vs. Morningstar Unconstrained Allocation | PepsiCo vs. Thrivent High Yield | PepsiCo vs. Via Renewables |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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