Correlation Between Keurig Dr and PepsiCo

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Can any of the company-specific risk be diversified away by investing in both Keurig Dr 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 Keurig Dr and PepsiCo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Keurig Dr Pepper and PepsiCo, you can compare the effects of market volatilities on Keurig Dr 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 Keurig Dr with a short position of PepsiCo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Keurig Dr and PepsiCo.

Diversification Opportunities for Keurig Dr and PepsiCo

KeurigPepsiCoDiversified AwayKeurigPepsiCoDiversified Away100%
0.6
  Correlation Coefficient

Poor diversification

The 3 months correlation between Keurig and PepsiCo is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Keurig Dr Pepper and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Keurig Dr 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 Keurig Dr Pepper 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 Keurig Dr i.e., Keurig Dr and PepsiCo go up and down completely randomly.

Pair Corralation between Keurig Dr and PepsiCo

Assuming the 90 days horizon Keurig Dr Pepper is expected to generate 0.85 times more return on investment than PepsiCo. However, Keurig Dr Pepper is 1.18 times less risky than PepsiCo. It trades about 0.05 of its potential returns per unit of risk. PepsiCo is currently generating about -0.07 per unit of risk. If you would invest  2,918  in Keurig Dr Pepper on November 19, 2024 and sell it today you would earn a total of  87.00  from holding Keurig Dr Pepper or generate 2.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Keurig Dr Pepper  vs.  PepsiCo

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-505
JavaScript chart by amCharts 3.21.15DP5 PEP
       Timeline  
Keurig Dr Pepper 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Keurig Dr Pepper are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Keurig Dr is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb2929.53030.53131.532
PepsiCo 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days PepsiCo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb140145150155

Keurig Dr and PepsiCo Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.26-1.7-1.14-0.58-0.02830.491.051.612.172.73 0.080.100.120.140.160.180.20
JavaScript chart by amCharts 3.21.15DP5 PEP
       Returns  

Pair Trading with Keurig Dr and PepsiCo

The main advantage of trading using opposite Keurig Dr and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Keurig Dr 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 Keurig Dr Pepper 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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