Correlation Between Unilever PLC and PepsiCo

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

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

Diversification Opportunities for Unilever PLC and PepsiCo

0.83

Correlation Coefficient

Unilever PLC  PepsiCo

Very poor diversification

The 3 months correlation between Unilever and PepsiCo is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Unilever PLC ADR and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Unilever PLC 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 Unilever PLC ADR 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 Unilever PLC i.e., Unilever PLC and PepsiCo go up and down completely randomly.

Pair Corralation between Unilever PLC and PepsiCo

Allowing for the 90-day total investment horizon Unilever PLC ADR is expected to under-perform the PepsiCo. But the stock apears to be less risky and, when comparing its historical volatility, Unilever PLC ADR is 1.02 times less risky than PepsiCo. The stock trades about -0.12 of its potential returns per unit of risk. The PepsiCo is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  17,157  in PepsiCo on August 30, 2024 and sell it today you would lose (885.00) from holding PepsiCo or give up 5.16% of portfolio value over 90 days.

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

Unilever PLC ADR  vs.  PepsiCo

Unilever PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Unilever PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

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 relatively invariable technical and fundamental indicators, PepsiCo is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Unilever PLC and PepsiCo

The main advantage of trading using opposite Unilever PLC and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unilever PLC 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 Unilever PLC ADR 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.