Correlation Between PepsiCo and SBM Offshore

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

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

Diversification Opportunities for PepsiCo and SBM Offshore

0.12

Correlation Coefficient

PepsiCo  SBM Offshore

Average diversification

The 3 months correlation between PepsiCo and SBM is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and SBM Offshore NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM Offshore NV 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 SBM Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM Offshore NV has no effect on the direction of PepsiCo i.e., PepsiCo and SBM Offshore go up and down completely randomly.

Pair Corralation between PepsiCo and SBM Offshore

Considering the 90-day investment horizon PepsiCo is expected to under-perform the SBM Offshore. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 2.05 times less risky than SBM Offshore. The stock trades about -0.18 of its potential returns per unit of risk. The SBM Offshore NV is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,801  in SBM Offshore NV on September 20, 2024 and sell it today you would lose (101.00) from holding SBM Offshore NV or give up 5.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

PepsiCo  vs.  SBM Offshore NV

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. Even with latest unsteady performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

SBM Offshore NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SBM Offshore NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, SBM Offshore is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with PepsiCo and SBM Offshore

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

The idea behind PepsiCo and SBM Offshore NV 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.