Correlation Between AETNA and PepsiCo

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

By analyzing existing cross correlation between AETNA INC 7625 and PepsiCo, you can compare the effects of market volatilities on AETNA 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 AETNA with a short position of PepsiCo. Check out your portfolio center. Please also check ongoing floating volatility patterns of AETNA and PepsiCo.

Diversification Opportunities for AETNA and PepsiCo

0.36

Correlation Coefficient

AETNA  PepsiCo

Weak diversification

The 3 months correlation between AETNA and PepsiCo is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding AETNA INC 7625 and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and AETNA 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 AETNA INC 7625 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 AETNA i.e., AETNA and PepsiCo go up and down completely randomly.

Pair Corralation between AETNA and PepsiCo

Assuming the 90 days trading horizon AETNA INC 7625 is expected to generate 2.75 times more return on investment than PepsiCo. However, AETNA is 2.75 times more volatile than PepsiCo. It trades about 0.01 of its potential returns per unit of risk. PepsiCo is currently generating about -0.44 per unit of risk. If you would invest  10,383  in AETNA INC 7625 on October 9, 2024 and sell it today you would earn a total of  7.00  from holding AETNA INC 7625 or generate 0.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	68.42%
Values	Daily Returns

AETNA INC 7625  vs.  PepsiCo

AETNA INC 7625

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AETNA INC 7625 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, AETNA is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with AETNA and PepsiCo

The main advantage of trading using opposite AETNA and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AETNA 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 AETNA INC 7625 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.