Correlation Between Keurig Dr and PepsiCo

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

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

Diversification Opportunities for Keurig Dr and PepsiCo

0.74

Correlation Coefficient

Keurig Dr  PepsiCo

Poor diversification

The 3 months correlation between Keurig and PepsiCo is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Keurig Dr Pepper and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Keurig Dr 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 Keurig Dr Pepper 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 Keurig Dr i.e., Keurig Dr and PepsiCo go up and down completely randomly.

Pair Corralation between Keurig Dr and PepsiCo

Considering the 90-day investment horizon Keurig Dr Pepper is expected to under-perform the PepsiCo. In addition to that, Keurig Dr is 1.14 times more volatile than PepsiCo. It trades about 0.0 of its total potential returns per unit of risk. PepsiCo is currently generating about 0.02 per unit of volatility. If you would invest  16,595  in PepsiCo on February 3, 2024 and sell it today you would earn a total of  1,024  from holding PepsiCo or generate 6.17% return on investment over 90 days.

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

Keurig Dr Pepper  vs.  PepsiCo

Keurig Dr Pepper

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Keurig Dr Pepper are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain fundamental indicators, Keurig Dr may actually be approaching a critical reversion point that can send shares even higher in June 2024.

PepsiCo

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PepsiCo are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, PepsiCo is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Keurig Dr and PepsiCo

The main advantage of trading using opposite Keurig Dr and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Keurig Dr 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 Keurig Dr Pepper 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.