If having a Diet Coke from Coca-Cola (NYSE:KO) is on the tip of your tongue the next time a waiter or waitress asks you what you'd like to drink with a meal, you may be quickly offered a Diet Pepsi from PepsiCo (NYSE:PEP) instead. Personal preferences aside, beverage providers can offer stability to an otherwise volatile portfolio. Let's take a look at why soft drink producer stocks are looking like a refreshing choice over financials and automotives.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Smoothed by Beta
A stock's beta relates to how it responds to the up and down swings of the overall stock market as measured by a broad index like the S&P 500 Index. A stock with beta of 1 suggests that a 5% increase or decrease in the S&P 500, or a tracking investment like the SPDRS S&P 500 Index ETF (NYSE:SPY), will translate into a nearly identical move by the stock. Likewise, a stock with a lower beta, let's say 0.5, may only move up and down half as much as a stock with a beta of 1.

SEE: Beta: Know The Risk

Pepsi's Beta Challenge
Pepsi's stock has gained 4.4% since the beginning of the year, while the SPY ETF has moved just above 4.86% over the same time frame. Although Pepsi is not performing as well as SPY over this brief period of time, long-term investors who have been invested over the past five years do have reason to cheer.

Pepsi's stock from November 2006 until November 2011 has gained about 3.5%, while the SPY ETF lost 10.2% of its value over the same time frame. Although beta is not a golden rule for determining the volatile nature of a stock, it is a starting point for investors as they begin conducting their own research.

SEE: Beta: Gauging Price Fluctuations

Coke's Beta Buffer
In a similar fashion Coke, with its beta of 0.49, has gained around 7.58% since the beginning of the year. Most impressively, Coca-Cola has gained 42.92% since 5 years ago.

Not So Similar
For further comparison in the soft drink industry, investors can also take note of Dr Pepper Snapple Group (NYSE:DPS). Dr Pepper Snapple has a beta of 0.05 and its stock has increased more than 62.84% since it started trading in May 2008; it has already gained 7.20% year to date.

The Bottom Line
A portfolio with heavy doses of financial services like Citigroup (NYSE:C) or automotive companies like Ford (NYSE:F) are exposed to stocks with relatively high beta ratios of 2.03 and 1.84 respectively. Investing in soft drink industry players is less likely to take the fizz out of your portfolio, but may smooth the ride for portfolios in need of an individual stock beta checkup.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    Top 3 Muni California Mutual Funds

    Discover analyses of the top three California municipal bond mutual funds, and learn about their characteristics, historical performance and suitability.
  2. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  3. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  4. Savings

    Become Your Own Financial Advisor

    If you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
  5. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  6. Investing Basics

    6 Reasons Hedge Funds Underperform

    Understand the hedge fund industry and why it has grown exponentially since 1995. Learn about the top six reasons why the industry underperforms.
  7. Mutual Funds & ETFs

    Mutual Funds Are Not FDIC Insured: Here Is Why

    Find out why mutual funds are not insured by the FDIC, including why the FDIC was created and how to minimize your risk with educated mutual fund investments.
  8. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  9. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  10. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. Can your car insurance company check your driving record?

    While your auto insurance company cannot pull your full motor vehicle report, or MVR, it does pull a record summary that ... Read Full Answer >>
  3. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  4. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  5. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  6. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!