Correlation Between PepsiCo and Embotelladora Andina

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

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

Diversification Opportunities for PepsiCo and Embotelladora Andina

-0.77

Correlation Coefficient

PepsiCo  Embotelladora Andina

Pay attention - limited upside

The 3 months correlation between PepsiCo and Embotelladora is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and Embotelladora Andina SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embotelladora Andina 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 Embotelladora Andina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embotelladora Andina has no effect on the direction of PepsiCo i.e., PepsiCo and Embotelladora Andina go up and down completely randomly.

Pair Corralation between PepsiCo and Embotelladora Andina

Considering the 90-day investment horizon PepsiCo is expected to under-perform the Embotelladora Andina. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 2.09 times less risky than Embotelladora Andina. The stock trades about -0.04 of its potential returns per unit of risk. The Embotelladora Andina SA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,256  in Embotelladora Andina SA on November 28, 2024 and sell it today you would earn a total of  269.00  from holding Embotelladora Andina SA or generate 21.42% return on investment over 90 days.

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

PepsiCo  vs.  Embotelladora Andina SA

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. Even with relatively invariable technical and fundamental indicators, PepsiCo is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Embotelladora Andina

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Embotelladora Andina SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Embotelladora Andina sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PepsiCo and Embotelladora Andina

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

The idea behind PepsiCo and Embotelladora Andina SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.