Correlation Between PREMIER FOODS and PepsiCo

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

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

Diversification Opportunities for PREMIER FOODS and PepsiCo

0.39

Correlation Coefficient

PREMIER FOODS  PepsiCo

Weak diversification

The 3 months correlation between PREMIER and PepsiCo is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding PREMIER FOODS and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and PREMIER FOODS 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 PREMIER FOODS 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 PREMIER FOODS i.e., PREMIER FOODS and PepsiCo go up and down completely randomly.

Pair Corralation between PREMIER FOODS and PepsiCo

Assuming the 90 days trading horizon PREMIER FOODS is expected to under-perform the PepsiCo. But the stock apears to be less risky and, when comparing its historical volatility, PREMIER FOODS is 1.22 times less risky than PepsiCo. The stock trades about -0.06 of its potential returns per unit of risk. The PepsiCo is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  15,348  in PepsiCo on December 3, 2024 and sell it today you would lose (520.00) from holding PepsiCo or give up 3.39% of portfolio value over 90 days.

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

PREMIER FOODS  vs.  PepsiCo

PREMIER FOODS

Risk-Adjusted Performance

Very Weak

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

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PREMIER FOODS and PepsiCo

The main advantage of trading using opposite PREMIER FOODS and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PREMIER FOODS 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 PREMIER FOODS 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.