Correlation Between Fast Retailing and PEPSICO

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

By analyzing existing cross correlation between Fast Retailing Co and PEPSICO INC 55, you can compare the effects of market volatilities on Fast Retailing 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 Fast Retailing with a short position of PEPSICO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fast Retailing and PEPSICO.

Diversification Opportunities for Fast Retailing and PEPSICO

-0.01

Correlation Coefficient

Fast Retailing  PEPSICO

Good diversification

The 3 months correlation between Fast and PEPSICO is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Fast Retailing Co and PEPSICO INC 55 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PEPSICO INC 55 and Fast Retailing 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 Fast Retailing 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 INC 55 has no effect on the direction of Fast Retailing i.e., Fast Retailing and PEPSICO go up and down completely randomly.

Pair Corralation between Fast Retailing and PEPSICO

Assuming the 90 days horizon Fast Retailing is expected to generate 11.06 times less return on investment than PEPSICO. But when comparing it to its historical volatility, Fast Retailing Co is 7.11 times less risky than PEPSICO. It trades about 0.05 of its potential returns per unit of risk. PEPSICO INC 55 is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  11,092  in PEPSICO INC 55 on October 15, 2024 and sell it today you would lose (385.00) from holding PEPSICO INC 55 or give up 3.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	84.84%
Values	Daily Returns

Fast Retailing Co  vs.  PEPSICO INC 55

Fast Retailing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fast Retailing Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

PEPSICO INC 55

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days PEPSICO INC 55 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 recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fast Retailing and PEPSICO

The main advantage of trading using opposite Fast Retailing and PEPSICO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fast Retailing 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 Fast Retailing Co and PEPSICO INC 55 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.