Correlation Between Air Products and Yum Brands

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

By analyzing existing cross correlation between Air Products Chemicals and Yum Brands, you can compare the effects of market volatilities on Air Products and Yum Brands 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 Air Products with a short position of Yum Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Products and Yum Brands.

Diversification Opportunities for Air Products and Yum Brands

-0.15

Correlation Coefficient

Air Products  Yum Brands

Good diversification

The 3 months correlation between Air and Yum is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Air Products Chemicals and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Air Products 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 Air Products Chemicals are associated (or correlated) with Yum Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum Brands has no effect on the direction of Air Products i.e., Air Products and Yum Brands go up and down completely randomly.

Pair Corralation between Air Products and Yum Brands

Assuming the 90 days trading horizon Air Products is expected to generate 12.17 times less return on investment than Yum Brands. But when comparing it to its historical volatility, Air Products Chemicals is 1.08 times less risky than Yum Brands. It trades about 0.01 of its potential returns per unit of risk. Yum Brands is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  13,594  in Yum Brands on December 26, 2024 and sell it today you would earn a total of  1,954  from holding Yum Brands or generate 14.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Air Products Chemicals  vs.  Yum Brands

Air Products Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Air Products Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Air Products is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Yum Brands

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Yum Brands unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Products and Yum Brands

The main advantage of trading using opposite Air Products and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Products position performs unexpectedly, Yum Brands 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 Yum Brands will offset losses from the drop in Yum Brands' long position.

The idea behind Air Products Chemicals and Yum Brands 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.