Correlation Between PepsiCo and Flow Beverage

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

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

Diversification Opportunities for PepsiCo and Flow Beverage

0.66

Correlation Coefficient

PepsiCo  Flow Beverage

Poor diversification

The 3 months correlation between PepsiCo and Flow is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and Flow Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flow Beverage Corp 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 Flow Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flow Beverage Corp has no effect on the direction of PepsiCo i.e., PepsiCo and Flow Beverage go up and down completely randomly.

Pair Corralation between PepsiCo and Flow Beverage

Considering the 90-day investment horizon PepsiCo is expected to under-perform the Flow Beverage. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 5.3 times less risky than Flow Beverage. The stock trades about -0.17 of its potential returns per unit of risk. The Flow Beverage Corp is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Flow Beverage Corp on September 23, 2024 and sell it today you would lose (2.00) from holding Flow Beverage Corp or give up 15.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

PepsiCo  vs.  Flow Beverage Corp

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 latest weak performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Flow Beverage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Flow Beverage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with PepsiCo and Flow Beverage

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

The idea behind PepsiCo and Flow Beverage Corp 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.