Correlation Between Eastern and PepsiCo

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

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

Diversification Opportunities for Eastern and PepsiCo

0.87

Correlation Coefficient

Eastern  PepsiCo

Very poor diversification

The 3 months correlation between Eastern and PepsiCo is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Co and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Eastern 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 Eastern Co 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 Eastern i.e., Eastern and PepsiCo go up and down completely randomly.

Pair Corralation between Eastern and PepsiCo

Considering the 90-day investment horizon Eastern Co is expected to under-perform the PepsiCo. In addition to that, Eastern is 2.45 times more volatile than PepsiCo. It trades about -0.08 of its total potential returns per unit of risk. PepsiCo is currently generating about -0.16 per unit of volatility. If you would invest  16,579  in PepsiCo on October 7, 2024 and sell it today you would lose (1,614) from holding PepsiCo or give up 9.74% of portfolio value over 90 days.

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

Eastern Co  vs.  PepsiCo

Eastern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's primary indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 unsteady 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 Eastern and PepsiCo

The main advantage of trading using opposite Eastern and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eastern 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 Eastern Co 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.