Correlation Between PepsiCo and Cass Information

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

By analyzing existing cross correlation between PepsiCo and Cass Information Systems, you can compare the effects of market volatilities on PepsiCo and Cass Information 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 Cass Information. Check out your portfolio center. Please also check ongoing floating volatility patterns of PepsiCo and Cass Information.

Diversification Opportunities for PepsiCo and Cass Information

-0.34

Correlation Coefficient

PepsiCo  Cass Information

Very good diversification

The 3 months correlation between PepsiCo and Cass is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and Cass Information Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cass Information Systems 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 Cass Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cass Information Systems has no effect on the direction of PepsiCo i.e., PepsiCo and Cass Information go up and down completely randomly.

Pair Corralation between PepsiCo and Cass Information

Assuming the 90 days horizon PepsiCo is expected to under-perform the Cass Information. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 1.67 times less risky than Cass Information. The stock trades about -0.06 of its potential returns per unit of risk. The Cass Information Systems is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,653  in Cass Information Systems on September 28, 2024 and sell it today you would earn a total of  367.00  from holding Cass Information Systems or generate 10.05% return on investment over 90 days.

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

PepsiCo  vs.  Cass Information Systems

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

Cass Information Systems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cass Information Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cass Information may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with PepsiCo and Cass Information

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

The idea behind PepsiCo and Cass Information Systems 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.