Correlation Between Analog Devices and PepsiCo

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

Diversification Opportunities for Analog Devices and PepsiCo

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between Analog and PepsiCo is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Analog Devices and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Analog Devices 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 Analog Devices 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 Analog Devices i.e., Analog Devices and PepsiCo go up and down completely randomly.

Pair Corralation between Analog Devices and PepsiCo

Considering the 90-day investment horizon Analog Devices is expected to generate 1.72 times more return on investment than PepsiCo. However, Analog Devices is 1.72 times more volatile than PepsiCo. It trades about 0.04 of its potential returns per unit of risk. PepsiCo is currently generating about 0.02 per unit of risk. If you would invest  14,665  in Analog Devices on December 29, 2023 and sell it today you would earn a total of  4,668  from holding Analog Devices or generate 31.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Analog Devices  vs.  PepsiCo

 Performance 
       Timeline  
Analog Devices 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.
PepsiCo 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in PepsiCo are ranked lower than 3 (%) 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.

Analog Devices and PepsiCo Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Analog Devices and PepsiCo

The main advantage of trading using opposite Analog Devices and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Analog Devices 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 Analog Devices 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.

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