Correlation Between GM and PEPSICO

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

By analyzing existing cross correlation between General Motors and PEPSICO INC 3, you can compare the effects of market volatilities on GM 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 GM with a short position of PEPSICO. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and PEPSICO.

Diversification Opportunities for GM and PEPSICO

-0.37

Correlation Coefficient

GM  PEPSICO

Very good diversification

The 3 months correlation between GM and PEPSICO is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and PEPSICO INC 3 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PEPSICO INC 3 and GM 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 General Motors 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 3 has no effect on the direction of GM i.e., GM and PEPSICO go up and down completely randomly.

Pair Corralation between GM and PEPSICO

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the PEPSICO. In addition to that, GM is 5.14 times more volatile than PEPSICO INC 3. It trades about -0.31 of its total potential returns per unit of risk. PEPSICO INC 3 is currently generating about -0.1 per unit of volatility. If you would invest  9,635  in PEPSICO INC 3 on September 24, 2024 and sell it today you would lose (97.00) from holding PEPSICO INC 3 or give up 1.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  PEPSICO INC 3

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PEPSICO INC 3

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PEPSICO INC 3 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 GM and PEPSICO

The main advantage of trading using opposite GM and PEPSICO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors and PEPSICO INC 3 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.