Correlation Between Smith Douglas and PepsiCo

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

By analyzing existing cross correlation between Smith Douglas Homes and PepsiCo, you can compare the effects of market volatilities on Smith Douglas 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 Smith Douglas with a short position of PepsiCo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Douglas and PepsiCo.

Diversification Opportunities for Smith Douglas and PepsiCo

0.76

Correlation Coefficient

Smith Douglas  PepsiCo

Poor diversification

The 3 months correlation between Smith and PepsiCo is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Smith Douglas 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 Smith Douglas Homes 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 has no effect on the direction of Smith Douglas i.e., Smith Douglas and PepsiCo go up and down completely randomly.

Pair Corralation between Smith Douglas and PepsiCo

Given the investment horizon of 90 days Smith Douglas Homes is expected to under-perform the PepsiCo. In addition to that, Smith Douglas is 2.99 times more volatile than PepsiCo. It trades about -0.07 of its total potential returns per unit of risk. PepsiCo is currently generating about -0.17 per unit of volatility. If you would invest  17,537  in PepsiCo on September 17, 2024 and sell it today you would lose (1,740) from holding PepsiCo or give up 9.92% of portfolio value over 90 days.

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

Smith Douglas Homes  vs.  PepsiCo

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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.

Pair Trading with Smith Douglas and PepsiCo

The main advantage of trading using opposite Smith Douglas and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith Douglas 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 Smith Douglas Homes and PepsiCo 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.