Correlation Between Procter Gamble and PepsiCo

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

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

Diversification Opportunities for Procter Gamble and PepsiCo

0.56

Correlation Coefficient

Procter Gamble  PepsiCo

Very weak diversification

The 3 months correlation between Procter and PepsiCo is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Procter Gamble 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 Procter Gamble 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 Procter Gamble i.e., Procter Gamble and PepsiCo go up and down completely randomly.

Pair Corralation between Procter Gamble and PepsiCo

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 0.45 times more return on investment than PepsiCo. However, Procter Gamble is 2.2 times less risky than PepsiCo. It trades about 0.47 of its potential returns per unit of risk. PepsiCo is currently generating about 0.15 per unit of risk. If you would invest  15,566  in Procter Gamble on February 9, 2024 and sell it today you would earn a total of  941.00  from holding Procter Gamble or generate 6.05% return on investment over 90 days.

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

Procter Gamble  vs.  PepsiCo

Procter Gamble

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PepsiCo

Risk-Adjusted Performance

7 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PepsiCo are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain technical and fundamental indicators, PepsiCo may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Procter Gamble and PepsiCo

The main advantage of trading using opposite Procter Gamble and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble 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 Procter Gamble 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.