Correlation Between Pepsico and Nike

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Can any of the company-specific risk be diversified away by investing in both Pepsico and Nike 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 Nike into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pepsico and Nike Inc, you can compare the effects of market volatilities on Pepsico and Nike 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 Nike. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pepsico and Nike.

Diversification Opportunities for Pepsico and Nike

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Pepsico and Nike is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Pepsico and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc 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 Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of Pepsico i.e., Pepsico and Nike go up and down completely randomly.

Pair Corralation between Pepsico and Nike

Considering the 90-day investment horizon Pepsico is expected to generate 0.53 times more return on investment than Nike. However, Pepsico is 1.9 times less risky than Nike. It trades about 0.04 of its potential returns per unit of risk. Nike Inc is currently generating about -0.02 per unit of risk. If you would invest  13,538  in Pepsico on July 1, 2022 and sell it today you would earn a total of  3,122  from holding Pepsico or generate 23.06% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Pepsico  vs.  Nike Inc

 Performance (%) 
       Timeline  
Pepsico 
Pepsico Performance
0 of 100
Over the last 90 days Pepsico has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Pepsico is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the insiders.

Pepsico Price Channel

Nike Inc 
Nike Performance
0 of 100
Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Nike is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Nike Price Channel

Pepsico and Nike Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Pepsico and Nike

The main advantage of trading using opposite Pepsico and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pepsico position performs unexpectedly, Nike 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 Nike will offset losses from the drop in Nike's long position.
Pepsico vs. Amazon Inc
The idea behind Pepsico and Nike Inc 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.
Nike vs. Amazon Inc
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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