Correlation Between PepsiCo and Drilling Tools

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

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

Diversification Opportunities for PepsiCo and Drilling Tools

0.55

Correlation Coefficient

PepsiCo  Drilling Tools

Very weak diversification

The 3 months correlation between PepsiCo and Drilling is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and Drilling Tools International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drilling Tools Inter 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 Drilling Tools. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drilling Tools Inter has no effect on the direction of PepsiCo i.e., PepsiCo and Drilling Tools go up and down completely randomly.

Pair Corralation between PepsiCo and Drilling Tools

Considering the 90-day investment horizon PepsiCo is expected to generate 0.46 times more return on investment than Drilling Tools. However, PepsiCo is 2.15 times less risky than Drilling Tools. It trades about -0.04 of its potential returns per unit of risk. Drilling Tools International is currently generating about -0.02 per unit of risk. If you would invest  16,207  in PepsiCo on November 28, 2024 and sell it today you would lose (565.00) from holding PepsiCo or give up 3.49% of portfolio value over 90 days.

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

PepsiCo  vs.  Drilling Tools International

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.

Drilling Tools Inter

Risk-Adjusted Performance

Very Weak

Over the last 90 days Drilling Tools International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Drilling Tools is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with PepsiCo and Drilling Tools

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

The idea behind PepsiCo and Drilling Tools International 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 Stocks Directory module to find actively traded stocks across global markets.