Correlation Between KLA Tencor and PepsiCo

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

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

Diversification Opportunities for KLA Tencor and PepsiCo

0.65

Correlation Coefficient

KLA Tencor  PepsiCo

Poor diversification

The 3 months correlation between KLA and PepsiCo is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding KLA Tencor and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and KLA Tencor 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 KLA Tencor 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 KLA Tencor i.e., KLA Tencor and PepsiCo go up and down completely randomly.

Pair Corralation between KLA Tencor and PepsiCo

Given the investment horizon of 90 days KLA Tencor is expected to generate 2.48 times more return on investment than PepsiCo. However, KLA Tencor is 2.48 times more volatile than PepsiCo. It trades about 0.05 of its potential returns per unit of risk. PepsiCo is currently generating about -0.01 per unit of risk. If you would invest  41,135  in KLA Tencor on October 4, 2024 and sell it today you would earn a total of  22,264  from holding KLA Tencor or generate 54.12% return on investment over 90 days.

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

KLA Tencor  vs.  PepsiCo

KLA Tencor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KLA Tencor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

PepsiCo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PepsiCo has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unsteady performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with KLA Tencor and PepsiCo

The main advantage of trading using opposite KLA Tencor and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KLA Tencor 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 KLA Tencor 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.