Correlation Between PepsiCo and American Homes
Can any of the company-specific risk be diversified away by investing in both PepsiCo and American Homes 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 American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PepsiCo and American Homes 4, you can compare the effects of market volatilities on PepsiCo and American Homes 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 American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of PepsiCo and American Homes.
Diversification Opportunities for PepsiCo and American Homes
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between PepsiCo and American is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 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 American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of PepsiCo i.e., PepsiCo and American Homes go up and down completely randomly.
Pair Corralation between PepsiCo and American Homes
Assuming the 90 days trading horizon PepsiCo is expected to under-perform the American Homes. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 1.91 times less risky than American Homes. The stock trades about -0.03 of its potential returns per unit of risk. The American Homes 4 is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3,312 in American Homes 4 on September 24, 2024 and sell it today you would earn a total of 188.00 from holding American Homes 4 or generate 5.68% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
PepsiCo vs. American Homes 4
Performance |
Timeline |
PepsiCo |
American Homes 4 |
PepsiCo and American Homes Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with PepsiCo and American Homes
The main advantage of trading using opposite PepsiCo and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PepsiCo position performs unexpectedly, American Homes 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 American Homes will offset losses from the drop in American Homes' long position.PepsiCo vs. American Homes 4 | PepsiCo vs. COLUMBIA SPORTSWEAR | PepsiCo vs. bet at home AG | PepsiCo vs. Haverty Furniture Companies |
American Homes vs. Fevertree Drinks PLC | American Homes vs. MAGNUM MINING EXP | American Homes vs. United Breweries Co | American Homes vs. THAI BEVERAGE |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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