Correlation Between First Merchants and PEPSICO

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

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

Diversification Opportunities for First Merchants and PEPSICO

-0.58

Correlation Coefficient

First Merchants  PEPSICO

Excellent diversification

The 3 months correlation between First and PEPSICO is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants 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 First Merchants 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 First Merchants 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 First Merchants i.e., First Merchants and PEPSICO go up and down completely randomly.

Pair Corralation between First Merchants and PEPSICO

Given the investment horizon of 90 days First Merchants is expected to under-perform the PEPSICO. In addition to that, First Merchants is 1.05 times more volatile than PEPSICO INC 55. It trades about -0.25 of its total potential returns per unit of risk. PEPSICO INC 55 is currently generating about 0.12 per unit of volatility. If you would invest  10,424  in PEPSICO INC 55 on September 24, 2024 and sell it today you would earn a total of  363.00  from holding PEPSICO INC 55 or generate 3.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.0%
Values	Daily Returns

First Merchants  vs.  PEPSICO INC 55

First Merchants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Merchants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting primary indicators, First Merchants exhibited solid returns over the last few months and may actually be approaching a breakup point.

PEPSICO INC 55

Risk-Adjusted Performance

0 of 100

Very 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 current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Merchants and PEPSICO

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

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.