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

0.02

Correlation Coefficient

Coca Cola  PepsiCo

Significant diversification

The 3 months correlation between Coca and PepsiCo is 0.02. 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

Assuming the 90 days trading horizon The Coca Cola is expected to generate 0.81 times more return on investment than PepsiCo. However, The Coca Cola is 1.23 times less risky than PepsiCo. It trades about 0.12 of its potential returns per unit of risk. PepsiCo is currently generating about -0.04 per unit of risk. If you would invest  5,933  in The Coca Cola on December 29, 2024 and sell it today you would earn a total of  604.00  from holding The Coca Cola or generate 10.18% return on investment over 90 days.

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

The Coca Cola  vs.  PepsiCo

Coca Cola

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in April 2025.

PepsiCo

Risk-Adjusted Performance

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 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.

The idea behind The Coca Cola 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.