Correlation Between PepsiCo and Peabody Energy

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

By analyzing existing cross correlation between PepsiCo and Peabody Energy Corp, you can compare the effects of market volatilities on PepsiCo and Peabody Energy 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 Peabody Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of PepsiCo and Peabody Energy.

Diversification Opportunities for PepsiCo and Peabody Energy

-0.56

Correlation Coefficient

PepsiCo  Peabody Energy

Excellent diversification

The 3 months correlation between PepsiCo and Peabody is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and Peabody Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peabody Energy Corp 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 Peabody Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peabody Energy Corp has no effect on the direction of PepsiCo i.e., PepsiCo and Peabody Energy go up and down completely randomly.

Pair Corralation between PepsiCo and Peabody Energy

Considering the 90-day investment horizon PepsiCo is expected to generate 0.57 times more return on investment than Peabody Energy. However, PepsiCo is 1.75 times less risky than Peabody Energy. It trades about 0.14 of its potential returns per unit of risk. Peabody Energy Corp is currently generating about -0.08 per unit of risk. If you would invest  16,958  in PepsiCo on February 6, 2024 and sell it today you would earn a total of  589.00  from holding PepsiCo or generate 3.47% return on investment over 90 days.

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

PepsiCo  vs.  Peabody Energy Corp

PepsiCo

Risk-Adjusted Performance

3 of 100

Insignificant

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.

Peabody Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peabody Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in June 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with PepsiCo and Peabody Energy

The main advantage of trading using opposite PepsiCo and Peabody Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PepsiCo position performs unexpectedly, Peabody Energy 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 Peabody Energy will offset losses from the drop in Peabody Energy's long position.

The idea behind PepsiCo and Peabody Energy Corp 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.