Correlation Between Nike and PepsiCo
Can any of the company-specific risk be diversified away by investing in both Nike 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 Nike and PepsiCo into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nike Inc and PepsiCo, you can compare the effects of market volatilities on Nike 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 Nike with a short position of PepsiCo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nike and PepsiCo.
Diversification Opportunities for Nike and PepsiCo
Very weak diversification
The 3 months correlation between Nike and PepsiCo is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and Nike 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 Nike Inc 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 Nike i.e., Nike and PepsiCo go up and down completely randomly.
Pair Corralation between Nike and PepsiCo
Considering the 90-day investment horizon Nike Inc is expected to generate 1.29 times more return on investment than PepsiCo. However, Nike is 1.29 times more volatile than PepsiCo. It trades about 0.07 of its potential returns per unit of risk. PepsiCo is currently generating about -0.09 per unit of risk. If you would invest 7,627 in Nike Inc on September 13, 2024 and sell it today you would earn a total of 169.00 from holding Nike Inc or generate 2.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nike Inc vs. PepsiCo
Performance |
| Timeline |
| Nike Inc |
| PepsiCo |
Nike and PepsiCo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nike and PepsiCo
The main advantage of trading using opposite Nike and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike 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 Nike Inc 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.| PepsiCo vs. Coca Cola Consolidated | PepsiCo vs. Monster Beverage Corp | PepsiCo vs. Celsius Holdings | PepsiCo vs. Keurig Dr Pepper |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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