Correlation Between Rocky Mountain and PepsiCo

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

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

Diversification Opportunities for Rocky Mountain and PepsiCo

0.29

Correlation Coefficient

Rocky Mountain  PepsiCo

Modest diversification

The 3 months correlation between Rocky and PepsiCo is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Rocky Mountain High and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Rocky Mountain 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 Rocky Mountain High are associated (or correlated) with PepsiCo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PepsiCo has no effect on the direction of Rocky Mountain i.e., Rocky Mountain and PepsiCo go up and down completely randomly.

Pair Corralation between Rocky Mountain and PepsiCo

Given the investment horizon of 90 days Rocky Mountain High is expected to generate 23.55 times more return on investment than PepsiCo. However, Rocky Mountain is 23.55 times more volatile than PepsiCo. It trades about 0.09 of its potential returns per unit of risk. PepsiCo is currently generating about -0.03 per unit of risk. If you would invest  1.20  in Rocky Mountain High on September 27, 2024 and sell it today you would lose (0.40) from holding Rocky Mountain High or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Rocky Mountain High  vs.  PepsiCo

Rocky Mountain High

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rocky Mountain High are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical indicators, Rocky Mountain sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Rocky Mountain and PepsiCo

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

The idea behind Rocky Mountain High and PepsiCo 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.