Correlation Between Bank of America and PepsiCo
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and PepsiCo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and PepsiCo, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of PepsiCo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and PepsiCo.
Diversification Opportunities for Bank of America and PepsiCo
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Bank and PepsiCo is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and PepsiCo go up and down completely randomly.
Pair Corralation between Bank of America and PepsiCo
Assuming the 90 days trading horizon Bank of America is expected to generate 1.05 times more return on investment than PepsiCo. However, Bank of America is 1.05 times more volatile than PepsiCo. It trades about 0.07 of its potential returns per unit of risk. PepsiCo is currently generating about 0.0 per unit of risk. If you would invest 60,868 in Bank of America on September 4, 2024 and sell it today you would earn a total of 35,232 from holding Bank of America or generate 57.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. PepsiCo
Performance |
| Timeline |
| Bank of America |
| PepsiCo |
Bank of America and PepsiCo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and PepsiCo
The main advantage of trading using opposite Bank of America and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. Ameriprise Financial | Bank of America vs. United States Steel | Bank of America vs. First Majestic Silver | Bank of America vs. Verizon Communications |
| PepsiCo vs. Grupo Carso SAB | PepsiCo vs. McEwen Mining | PepsiCo vs. Cognizant Technology Solutions | PepsiCo vs. Costco Wholesale |
Check out your portfolio center.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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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