Correlation Between PepsiCo and National Beverage

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

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

Diversification Opportunities for PepsiCo and National Beverage

0.41

Correlation Coefficient

PepsiCo  National Beverage

Very weak diversification

The 3 months correlation between PepsiCo and National is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and National Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Beverage Corp and PepsiCo 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 PepsiCo are associated (or correlated) with National Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Beverage Corp has no effect on the direction of PepsiCo i.e., PepsiCo and National Beverage go up and down completely randomly.

Pair Corralation between PepsiCo and National Beverage

Assuming the 90 days horizon PepsiCo is expected to generate 1.15 times more return on investment than National Beverage. However, PepsiCo is 1.15 times more volatile than National Beverage Corp. It trades about -0.04 of its potential returns per unit of risk. National Beverage Corp is currently generating about -0.07 per unit of risk. If you would invest  14,529  in PepsiCo on December 30, 2024 and sell it today you would lose (829.00) from holding PepsiCo or give up 5.71% of portfolio value over 90 days.

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

PepsiCo  vs.  National Beverage Corp

PepsiCo

Risk-Adjusted Performance

Very Weak

Over the last 90 days PepsiCo has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PepsiCo is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

National Beverage Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PepsiCo and National Beverage

The main advantage of trading using opposite PepsiCo and National Beverage positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PepsiCo position performs unexpectedly, National Beverage 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 National Beverage will offset losses from the drop in National Beverage's long position.

The idea behind PepsiCo and National Beverage Corp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.