Correlation Between Church Dwight and PEPSICO

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

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

Diversification Opportunities for Church Dwight and PEPSICO

-0.37

Correlation Coefficient

Church Dwight  PEPSICO

Very good diversification

The 3 months correlation between Church and PEPSICO is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Church Dwight and PEPSICO INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PEPSICO INC and Church Dwight 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 Church Dwight 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 INC has no effect on the direction of Church Dwight i.e., Church Dwight and PEPSICO go up and down completely randomly.

Pair Corralation between Church Dwight and PEPSICO

Considering the 90-day investment horizon Church Dwight is expected to under-perform the PEPSICO. But the stock apears to be less risky and, when comparing its historical volatility, Church Dwight is 2.24 times less risky than PEPSICO. The stock trades about -0.02 of its potential returns per unit of risk. The PEPSICO INC is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  8,011  in PEPSICO INC on October 14, 2024 and sell it today you would lose (157.00) from holding PEPSICO INC or give up 1.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	85.48%
Values	Daily Returns

Church Dwight  vs.  PEPSICO INC

Church Dwight

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Church Dwight has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Church Dwight is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

PEPSICO INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PEPSICO INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, PEPSICO is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Church Dwight and PEPSICO

The main advantage of trading using opposite Church Dwight and PEPSICO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Church Dwight 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 Church Dwight and PEPSICO INC 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.