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 Cola FEMSA SAB 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

0.67

Correlation Coefficient

Coca Cola  PepsiCo

Poor diversification

The 3 months correlation between Coca and PepsiCo is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Coca Cola FEMSA SAB 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 Cola FEMSA SAB 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 horizon Coca Cola FEMSA SAB is expected to generate 4.13 times more return on investment than PepsiCo. However, Coca Cola is 4.13 times more volatile than PepsiCo. It trades about 0.03 of its potential returns per unit of risk. PepsiCo is currently generating about -0.26 per unit of risk. If you would invest  796.00  in Coca Cola FEMSA SAB on September 23, 2024 and sell it today you would earn a total of  10.00  from holding Coca Cola FEMSA SAB or generate 1.26% return on investment over 90 days.

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

Coca Cola FEMSA SAB  vs.  PepsiCo

Coca Cola FEMSA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coca Cola FEMSA SAB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Coca Cola is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Even with latest fragile performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail 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 Coca Cola FEMSA SAB 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.