Correlation Between PepsiCo and INVITATION HOMES

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

By analyzing existing cross correlation between PepsiCo and INVITATION HOMES DL, you can compare the effects of market volatilities on PepsiCo and INVITATION HOMES 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 INVITATION HOMES. Check out your portfolio center. Please also check ongoing floating volatility patterns of PepsiCo and INVITATION HOMES.

Diversification Opportunities for PepsiCo and INVITATION HOMES

0.02

Correlation Coefficient

PepsiCo  INVITATION HOMES

Significant diversification

The 3 months correlation between PepsiCo and INVITATION is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and INVITATION HOMES DL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INVITATION HOMES 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 INVITATION HOMES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INVITATION HOMES has no effect on the direction of PepsiCo i.e., PepsiCo and INVITATION HOMES go up and down completely randomly.

Pair Corralation between PepsiCo and INVITATION HOMES

Assuming the 90 days trading horizon PepsiCo is expected to under-perform the INVITATION HOMES. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 1.6 times less risky than INVITATION HOMES. The stock trades about -0.06 of its potential returns per unit of risk. The INVITATION HOMES DL is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,152  in INVITATION HOMES DL on September 24, 2024 and sell it today you would lose (72.00) from holding INVITATION HOMES DL or give up 2.28% of portfolio value over 90 days.

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

PepsiCo  vs.  INVITATION HOMES DL

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. In spite of comparatively stable basic indicators, PepsiCo is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

INVITATION HOMES

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with PepsiCo and INVITATION HOMES

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

The idea behind PepsiCo and INVITATION HOMES DL 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.