Correlation Between BBB Foods and PEPSICO

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

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

Diversification Opportunities for BBB Foods and PEPSICO

0.55

Correlation Coefficient

BBB Foods  PEPSICO

Very weak diversification

The 3 months correlation between BBB and PEPSICO is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding BBB Foods 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 BBB Foods 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 BBB Foods 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 BBB Foods i.e., BBB Foods and PEPSICO go up and down completely randomly.

Pair Corralation between BBB Foods and PEPSICO

Given the investment horizon of 90 days BBB Foods is expected to generate 20.02 times less return on investment than PEPSICO. But when comparing it to its historical volatility, BBB Foods is 25.98 times less risky than PEPSICO. It trades about 0.09 of its potential returns per unit of risk. PEPSICO INC 425 is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,235  in PEPSICO INC 425 on September 26, 2024 and sell it today you would earn a total of  148.00  from holding PEPSICO INC 425 or generate 1.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	70.72%
Values	Daily Returns

BBB Foods  vs.  PEPSICO INC 425

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BBB Foods is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the 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 BBB Foods and PEPSICO

The main advantage of trading using opposite BBB Foods and PEPSICO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BBB Foods 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 BBB Foods 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.

Check out your portfolio center.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.