Correlation Between Alphabet and PepsiCo

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

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

Diversification Opportunities for Alphabet and PepsiCo

-0.53

Correlation Coefficient

Alphabet  PepsiCo

Excellent diversification

The 3 months correlation between Alphabet and PepsiCo is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Class A and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Alphabet 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 Alphabet Class A 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 Alphabet i.e., Alphabet and PepsiCo go up and down completely randomly.

Pair Corralation between Alphabet and PepsiCo

Assuming the 90 days trading horizon Alphabet Class A is expected to generate 1.9 times more return on investment than PepsiCo. However, Alphabet is 1.9 times more volatile than PepsiCo. It trades about 0.2 of its potential returns per unit of risk. PepsiCo is currently generating about -0.08 per unit of risk. If you would invest  14,568  in Alphabet Class A on September 23, 2024 and sell it today you would earn a total of  3,758  from holding Alphabet Class A or generate 25.8% return on investment over 90 days.

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

Alphabet Class A  vs.  PepsiCo

Alphabet Class A

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Class A are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, Alphabet reported solid returns over the last few months and may actually be approaching a breakup point.

PepsiCo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PepsiCo has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, PepsiCo is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Alphabet and PepsiCo

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

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.