Correlation Between HCA Healthcare and Yum Brands

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

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

Diversification Opportunities for HCA Healthcare and Yum Brands

0.42

Correlation Coefficient

HCA Healthcare  Yum Brands

Very weak diversification

The 3 months correlation between HCA and Yum is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding HCA Healthcare and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and HCA Healthcare 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 HCA Healthcare 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 HCA Healthcare i.e., HCA Healthcare and Yum Brands go up and down completely randomly.

Pair Corralation between HCA Healthcare and Yum Brands

Assuming the 90 days trading horizon HCA Healthcare is expected to generate 1.09 times less return on investment than Yum Brands. In addition to that, HCA Healthcare is 1.27 times more volatile than Yum Brands. It trades about 0.11 of its total potential returns per unit of risk. Yum Brands is currently generating about 0.16 per unit of volatility. If you would invest  13,313  in Yum Brands on December 29, 2024 and sell it today you would earn a total of  2,282  from holding Yum Brands or generate 17.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

HCA Healthcare  vs.  Yum Brands

HCA Healthcare

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HCA Healthcare are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, HCA Healthcare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Yum Brands

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 12 (%) 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 HCA Healthcare and Yum Brands

The main advantage of trading using opposite HCA Healthcare and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HCA Healthcare 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 HCA Healthcare 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.