Correlation Between PepsiCo and American Homes

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

By analyzing existing cross correlation between PepsiCo and American Homes 4, you can compare the effects of market volatilities on PepsiCo and American 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 American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of PepsiCo and American Homes.

Diversification Opportunities for PepsiCo and American Homes

-0.1

Correlation Coefficient

PepsiCo  American Homes

Good diversification

The 3 months correlation between PepsiCo and American is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of PepsiCo i.e., PepsiCo and American Homes go up and down completely randomly.

Pair Corralation between PepsiCo and American Homes

Assuming the 90 days trading horizon PepsiCo is expected to under-perform the American Homes. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 1.78 times less risky than American Homes. The stock trades about -0.21 of its potential returns per unit of risk. The American Homes 4 is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,415  in American Homes 4 on October 12, 2024 and sell it today you would earn a total of  65.00  from holding American Homes 4 or generate 1.9% return on investment over 90 days.

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

PepsiCo  vs.  American Homes 4

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 fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

American Homes 4

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Homes 4 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, American Homes is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with PepsiCo and American Homes

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

The idea behind PepsiCo and American Homes 4 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.