Correlation Between Archer Daniels and PepsiCo

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

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

Diversification Opportunities for Archer Daniels and PepsiCo

0.46

Correlation Coefficient

Archer Daniels  PepsiCo

Very weak diversification

The 3 months correlation between Archer and PepsiCo is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Archer Daniels Midland and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Archer Daniels 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 Archer Daniels Midland 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 Archer Daniels i.e., Archer Daniels and PepsiCo go up and down completely randomly.

Pair Corralation between Archer Daniels and PepsiCo

Considering the 90-day investment horizon Archer Daniels Midland is expected to under-perform the PepsiCo. In addition to that, Archer Daniels is 2.54 times more volatile than PepsiCo. It trades about -0.02 of its total potential returns per unit of risk. PepsiCo is currently generating about 0.09 per unit of volatility. If you would invest  15,841  in PepsiCo on January 25, 2024 and sell it today you would earn a total of  1,851  from holding PepsiCo or generate 11.68% return on investment over 90 days.

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

Archer Daniels Midland  vs.  PepsiCo

Archer Daniels Midland

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Archer Daniels Midland are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Archer Daniels displayed solid returns over the last few months and may actually be approaching a breakup point.

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 unsteady technical and fundamental indicators, PepsiCo may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Archer Daniels and PepsiCo

The main advantage of trading using opposite Archer Daniels and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Archer Daniels 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 Archer Daniels Midland 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.