Correlation Between PepsiCo and China Foods

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

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

Diversification Opportunities for PepsiCo and China Foods

0.3

Correlation Coefficient

PepsiCo  China Foods

Weak diversification

The 3 months correlation between PepsiCo and China is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and China Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Foods Limited and PepsiCo 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 PepsiCo are associated (or correlated) with China Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Foods Limited has no effect on the direction of PepsiCo i.e., PepsiCo and China Foods go up and down completely randomly.

Pair Corralation between PepsiCo and China Foods

Assuming the 90 days horizon PepsiCo is expected to generate 2.78 times less return on investment than China Foods. But when comparing it to its historical volatility, PepsiCo is 2.43 times less risky than China Foods. It trades about 0.06 of its potential returns per unit of risk. China Foods Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  31.00  in China Foods Limited on April 24, 2025 and sell it today you would earn a total of  4.00  from holding China Foods Limited or generate 12.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

PepsiCo  vs.  China Foods Limited

PepsiCo

Risk-Adjusted Performance

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. Despite nearly stable basic indicators, PepsiCo is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

China Foods Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Foods Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, China Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PepsiCo and China Foods

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

The idea behind PepsiCo and China Foods Limited 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.