Correlation Between British Amer and PepsiCo

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

By analyzing existing cross correlation between British American Tobacco and PepsiCo, you can compare the effects of market volatilities on British Amer 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 British Amer with a short position of PepsiCo. Check out your portfolio center. Please also check ongoing floating volatility patterns of British Amer and PepsiCo.

Diversification Opportunities for British Amer and PepsiCo

0.75

Correlation Coefficient

British Amer  PepsiCo

Poor diversification

The 3 months correlation between British and PepsiCo is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and PepsiCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PepsiCo and British Amer 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 British American Tobacco 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 British Amer i.e., British Amer and PepsiCo go up and down completely randomly.

Pair Corralation between British Amer and PepsiCo

Considering the 90-day investment horizon British American Tobacco is expected to generate 0.91 times more return on investment than PepsiCo. However, British American Tobacco is 1.1 times less risky than PepsiCo. It trades about 0.29 of its potential returns per unit of risk. PepsiCo is currently generating about 0.08 per unit of risk. If you would invest  4,376  in British American Tobacco on May 7, 2025 and sell it today you would earn a total of  1,179  from holding British American Tobacco or generate 26.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

British American Tobacco  vs.  PepsiCo

British American Tobacco

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, British Amer demonstrated solid returns over the last few months and may actually be approaching a breakup point.

PepsiCo

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PepsiCo are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, PepsiCo may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with British Amer and PepsiCo

The main advantage of trading using opposite British Amer and PepsiCo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British Amer 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 British American Tobacco 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.

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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.