Correlation Between Alliance Resource and PepsiCo

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

By analyzing existing cross correlation between Alliance Resource Partners and PepsiCo, you can compare the effects of market volatilities on Alliance Resource 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 Alliance Resource with a short position of PepsiCo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alliance Resource and PepsiCo.

Diversification Opportunities for Alliance Resource and PepsiCo

0.76

Correlation Coefficient

Alliance Resource  PepsiCo

Poor diversification

The 3 months correlation between Alliance and PepsiCo is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Alliance Resource Partners and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Alliance Resource 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 Alliance Resource Partners 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 Alliance Resource i.e., Alliance Resource and PepsiCo go up and down completely randomly.

Pair Corralation between Alliance Resource and PepsiCo

Given the investment horizon of 90 days Alliance Resource Partners is expected to generate 1.22 times more return on investment than PepsiCo. However, Alliance Resource is 1.22 times more volatile than PepsiCo. It trades about 0.27 of its potential returns per unit of risk. PepsiCo is currently generating about 0.25 per unit of risk. If you would invest  2,044  in Alliance Resource Partners on February 11, 2024 and sell it today you would earn a total of  182.00  from holding Alliance Resource Partners or generate 8.9% return on investment over 90 days.

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

Alliance Resource Partners  vs.  PepsiCo

Alliance Resource

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alliance Resource Partners are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady essential indicators, Alliance Resource reported solid returns over the last few months and may actually be approaching a breakup point.

PepsiCo

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PepsiCo are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, PepsiCo may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Alliance Resource and PepsiCo

The main advantage of trading using opposite Alliance Resource and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alliance Resource 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.

The idea behind Alliance Resource Partners and PepsiCo 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.