Correlation Between PepsiCo and American Airlines
Can any of the company-specific risk be diversified away by investing in both PepsiCo and American Airlines 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 American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PepsiCo and American Airlines Group, you can compare the effects of market volatilities on PepsiCo and American Airlines 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 American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of PepsiCo and American Airlines.
Diversification Opportunities for PepsiCo and American Airlines
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between PepsiCo and American is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding PepsiCo and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines 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 American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of PepsiCo i.e., PepsiCo and American Airlines go up and down completely randomly.
Pair Corralation between PepsiCo and American Airlines
Considering the 90-day investment horizon PepsiCo is expected to under-perform the American Airlines. But the stock apears to be less risky and, when comparing its historical volatility, PepsiCo is 2.53 times less risky than American Airlines. The stock trades about -0.09 of its potential returns per unit of risk. The American Airlines Group is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 1,156 in American Airlines Group on August 28, 2024 and sell it today you would earn a total of 308.00 from holding American Airlines Group or generate 26.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
PepsiCo vs. American Airlines Group
Performance |
| Timeline |
| PepsiCo |
| American Airlines |
PepsiCo and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PepsiCo and American Airlines
The main advantage of trading using opposite PepsiCo and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PepsiCo position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| PepsiCo vs. Coca Cola Consolidated | PepsiCo vs. Monster Beverage Corp | PepsiCo vs. Celsius Holdings | PepsiCo vs. Keurig Dr Pepper |
| American Airlines vs. Delta Air Lines | American Airlines vs. Southwest Airlines | American Airlines vs. JetBlue Airways Corp | American Airlines vs. Spirit Airlines |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
Other Complementary Tools
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Bonds Directory Find actively traded corporate debentures issued by US companies | |
| Equity Search Search for actively traded equities including funds and ETFs from over 30 global markets | |
| Analyst Advice Analyst recommendations and target price estimates broken down by several categories | |
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets |