Correlation Between PepsiCo and Zapata Computing

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

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

Diversification Opportunities for PepsiCo and Zapata Computing

0.74

Correlation Coefficient

PepsiCo  Zapata Computing

Poor diversification

The 3 months correlation between PepsiCo and Zapata is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and Zapata Computing Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zapata Computing Holdings 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 Zapata Computing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zapata Computing Holdings has no effect on the direction of PepsiCo i.e., PepsiCo and Zapata Computing go up and down completely randomly.

Pair Corralation between PepsiCo and Zapata Computing

Considering the 90-day investment horizon PepsiCo is expected to under-perform the Zapata Computing. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 34.77 times less risky than Zapata Computing. The stock trades about -0.02 of its potential returns per unit of risk. The Zapata Computing Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  7.04  in Zapata Computing Holdings on September 19, 2024 and sell it today you would lose (6.48) from holding Zapata Computing Holdings or give up 92.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	76.01%
Values	Daily Returns

PepsiCo  vs.  Zapata Computing Holdings

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 unsteady 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.

Zapata Computing Holdings

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Zapata Computing Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Zapata Computing showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PepsiCo and Zapata Computing

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

The idea behind PepsiCo and Zapata Computing Holdings 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.