Correlation Between PepsiCo and KINDER

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

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

Diversification Opportunities for PepsiCo and KINDER

0.61

Correlation Coefficient

PepsiCo  KINDER

Poor diversification

The 3 months correlation between PepsiCo and KINDER is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and KINDER MORGAN ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KINDER MORGAN ENERGY 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 KINDER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KINDER MORGAN ENERGY has no effect on the direction of PepsiCo i.e., PepsiCo and KINDER go up and down completely randomly.

Pair Corralation between PepsiCo and KINDER

Considering the 90-day investment horizon PepsiCo is expected to under-perform the KINDER. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 1.77 times less risky than KINDER. The stock trades about -0.22 of its potential returns per unit of risk. The KINDER MORGAN ENERGY is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  9,662  in KINDER MORGAN ENERGY on October 23, 2024 and sell it today you would earn a total of  359.00  from holding KINDER MORGAN ENERGY or generate 3.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	80.0%
Values	Daily Returns

PepsiCo  vs.  KINDER MORGAN ENERGY

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

KINDER MORGAN ENERGY

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in KINDER MORGAN ENERGY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KINDER 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 KINDER

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

The idea behind PepsiCo and KINDER MORGAN ENERGY 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.