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, 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

-0.67

Correlation Coefficient

First Merchants  PEPSICO

Excellent diversification

The 3 months correlation between First and PEPSICO is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding First Merchants and PEPSICO INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PEPSICO INC 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 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. But the stock apears to be less risky and, when comparing its historical volatility, First Merchants is 2.34 times less risky than PEPSICO. The stock trades about -0.25 of its potential returns per unit of risk. The PEPSICO INC is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  7,702  in PEPSICO INC on September 24, 2024 and sell it today you would lose (86.00) from holding PEPSICO INC or give up 1.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	85.0%
Values	Daily Returns

First Merchants  vs.  PEPSICO INC

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

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PEPSICO INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for PEPSICO INC 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 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.