Correlation Between PepsiCo and Taiwan Semiconductor

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

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

Diversification Opportunities for PepsiCo and Taiwan Semiconductor

-0.5

Correlation Coefficient

PepsiCo  Taiwan Semiconductor

Very good diversification

The 3 months correlation between PepsiCo and Taiwan is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and Taiwan Semiconductor Manufactu in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Semiconductor 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 Taiwan Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Semiconductor has no effect on the direction of PepsiCo i.e., PepsiCo and Taiwan Semiconductor go up and down completely randomly.

Pair Corralation between PepsiCo and Taiwan Semiconductor

Considering the 90-day investment horizon PepsiCo is expected to generate 0.48 times more return on investment than Taiwan Semiconductor. However, PepsiCo is 2.09 times less risky than Taiwan Semiconductor. It trades about -0.03 of its potential returns per unit of risk. Taiwan Semiconductor Manufacturing is currently generating about -0.07 per unit of risk. If you would invest  14,996  in PepsiCo on December 21, 2024 and sell it today you would lose (451.00) from holding PepsiCo or give up 3.01% of portfolio value over 90 days.

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

PepsiCo  vs.  Taiwan Semiconductor Manufactu

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.

Taiwan Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Taiwan Semiconductor Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with PepsiCo and Taiwan Semiconductor

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

The idea behind PepsiCo and Taiwan Semiconductor Manufacturing 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.