Correlation Between Altria and PepsiCo

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

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

Diversification Opportunities for Altria and PepsiCo

-0.65

Correlation Coefficient

Altria  PepsiCo

Excellent diversification

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

Pair Corralation between Altria and PepsiCo

Allowing for the 90-day total investment horizon Altria Group is expected to generate 1.41 times more return on investment than PepsiCo. However, Altria is 1.41 times more volatile than PepsiCo. It trades about 0.11 of its potential returns per unit of risk. PepsiCo is currently generating about -0.2 per unit of risk. If you would invest  4,860  in Altria Group on October 8, 2024 and sell it today you would earn a total of  454.00  from holding Altria Group or generate 9.34% return on investment over 90 days.

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

Altria Group  vs.  PepsiCo

Altria Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Altria may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Altria and PepsiCo

The main advantage of trading using opposite Altria and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Altria 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 Altria Group 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.