Correlation Between PepsiCo and Brown Forman

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Can any of the company-specific risk be diversified away by investing in both PepsiCo and Brown Forman 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 Brown Forman into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PepsiCo and Brown Forman, you can compare the effects of market volatilities on PepsiCo and Brown Forman 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 Brown Forman. Check out your portfolio center. Please also check ongoing floating volatility patterns of PepsiCo and Brown Forman.

Diversification Opportunities for PepsiCo and Brown Forman

-0.46
  Correlation Coefficient

Very good diversification

The 3 months correlation between PepsiCo and Brown is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and Brown Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman 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 Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of PepsiCo i.e., PepsiCo and Brown Forman go up and down completely randomly.

Pair Corralation between PepsiCo and Brown Forman

Considering the 90-day investment horizon PepsiCo is expected to generate 1.27 times more return on investment than Brown Forman. However, PepsiCo is 1.27 times more volatile than Brown Forman. It trades about 0.1 of its potential returns per unit of risk. Brown Forman is currently generating about -0.18 per unit of risk. If you would invest  17,273  in PepsiCo on January 26, 2024 and sell it today you would earn a total of  468.00  from holding PepsiCo or generate 2.71% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

PepsiCo  vs.  Brown Forman

 Performance 
       Timeline  
PepsiCo 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in PepsiCo are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. 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.
Brown Forman 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

PepsiCo and Brown Forman Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with PepsiCo and Brown Forman

The main advantage of trading using opposite PepsiCo and Brown Forman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PepsiCo position performs unexpectedly, Brown Forman 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 Brown Forman will offset losses from the drop in Brown Forman's long position.
The idea behind PepsiCo and Brown Forman 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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