Correlation Between Diamond Estates and PepsiCo

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

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

Diversification Opportunities for Diamond Estates and PepsiCo

0.52

Correlation Coefficient

Diamond Estates  PepsiCo

Very weak diversification

The 3 months correlation between Diamond and PepsiCo is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Diamond Estates Wines and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Diamond Estates 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 Diamond Estates Wines 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 Diamond Estates i.e., Diamond Estates and PepsiCo go up and down completely randomly.

Pair Corralation between Diamond Estates and PepsiCo

Assuming the 90 days horizon Diamond Estates Wines is expected to under-perform the PepsiCo. In addition to that, Diamond Estates is 1.8 times more volatile than PepsiCo. It trades about -0.22 of its total potential returns per unit of risk. PepsiCo is currently generating about 0.02 per unit of volatility. If you would invest  17,186  in PepsiCo on January 20, 2024 and sell it today you would earn a total of  41.00  from holding PepsiCo or generate 0.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Diamond Estates Wines  vs.  PepsiCo

Diamond Estates Wines

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Estates Wines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Diamond Estates may actually be approaching a critical reversion point that can send shares even higher in May 2024.

PepsiCo

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PepsiCo are ranked lower than 5 (%) 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.

Pair Trading with Diamond Estates and PepsiCo

The main advantage of trading using opposite Diamond Estates and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diamond Estates 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 Diamond Estates Wines 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.