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 COCA A HBC 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

-0.16

Correlation Coefficient

COCA COLA  PepsiCo

Good diversification

The 3 months correlation between COCA and PepsiCo is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding COCA A HBC 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 COCA A HBC 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 COCA A HBC is expected to generate 1.02 times more return on investment than PepsiCo. However, COCA COLA is 1.02 times more volatile than PepsiCo. It trades about 0.18 of its potential returns per unit of risk. PepsiCo is currently generating about -0.04 per unit of risk. If you would invest  3,460  in COCA A HBC on December 2, 2024 and sell it today you would earn a total of  640.00  from holding COCA A HBC or generate 18.5% return on investment over 90 days.

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

COCA A HBC  vs.  PepsiCo

COCA A HBC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in COCA A HBC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, COCA COLA reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable basic indicators, PepsiCo is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 COCA A HBC 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..