Correlation Between PepsiCo and Constellation Brands
Can any of the company-specific risk be diversified away by investing in both PepsiCo and Constellation Brands 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 Constellation Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PepsiCo and Constellation Brands Class, you can compare the effects of market volatilities on PepsiCo and Constellation Brands 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 Constellation Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of PepsiCo and Constellation Brands.
Diversification Opportunities for PepsiCo and Constellation Brands
0.25 | Correlation Coefficient |
Modest diversification
The 3 months correlation between PepsiCo and Constellation is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and Constellation Brands Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands 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 Constellation Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Brands has no effect on the direction of PepsiCo i.e., PepsiCo and Constellation Brands go up and down completely randomly.
Pair Corralation between PepsiCo and Constellation Brands
Considering the 90-day investment horizon PepsiCo is expected to generate 1.64 times less return on investment than Constellation Brands. In addition to that, PepsiCo is 1.07 times more volatile than Constellation Brands Class. It trades about 0.05 of its total potential returns per unit of risk. Constellation Brands Class is currently generating about 0.08 per unit of volatility. If you would invest 24,931 in Constellation Brands Class on January 25, 2024 and sell it today you would earn a total of 1,235 from holding Constellation Brands Class or generate 4.95% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
PepsiCo vs. Constellation Brands Class
Performance |
Timeline |
PepsiCo |
Constellation Brands |
PepsiCo and Constellation Brands Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with PepsiCo and Constellation Brands
The main advantage of trading using opposite PepsiCo and Constellation Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PepsiCo position performs unexpectedly, Constellation Brands 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 Constellation Brands will offset losses from the drop in Constellation Brands' long position.PepsiCo vs. Coca Cola Consolidated | PepsiCo vs. Monster Beverage Corp | PepsiCo vs. Celsius Holdings | PepsiCo vs. Keurig Dr Pepper |
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Check out your portfolio center.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 Transaction History module to view history of all your transactions and understand their impact on performance.
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