Correlation Between Stepan and PEPSICO

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

By analyzing existing cross correlation between Stepan Company and PEPSICO INC 425, you can compare the effects of market volatilities on Stepan and PEPSICO 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 Stepan with a short position of PEPSICO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepan and PEPSICO.

Diversification Opportunities for Stepan and PEPSICO

0.04

Correlation Coefficient

Stepan  PEPSICO

Significant diversification

The 3 months correlation between Stepan and PEPSICO is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Stepan Company and PEPSICO INC 425 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PEPSICO INC 425 and Stepan 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 Stepan Company are associated (or correlated) with PEPSICO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PEPSICO INC 425 has no effect on the direction of Stepan i.e., Stepan and PEPSICO go up and down completely randomly.

Pair Corralation between Stepan and PEPSICO

Considering the 90-day investment horizon Stepan Company is expected to under-perform the PEPSICO. But the stock apears to be less risky and, when comparing its historical volatility, Stepan Company is 1.31 times less risky than PEPSICO. The stock trades about -0.12 of its potential returns per unit of risk. The PEPSICO INC 425 is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  9,205  in PEPSICO INC 425 on September 26, 2024 and sell it today you would earn a total of  178.00  from holding PEPSICO INC 425 or generate 1.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	53.97%
Values	Daily Returns

Stepan Company  vs.  PEPSICO INC 425

Stepan Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stepan Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

PEPSICO INC 425

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PEPSICO INC 425 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, PEPSICO is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stepan and PEPSICO

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

The idea behind Stepan Company and PEPSICO INC 425 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.