Correlation Between Yum Brands and Axon Enterprise

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

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

Diversification Opportunities for Yum Brands and Axon Enterprise

-0.47

Correlation Coefficient

Yum Brands  Axon Enterprise

Very good diversification

The 3 months correlation between Yum and Axon is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and Axon Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Axon Enterprise and Yum Brands 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 Yum Brands are associated (or correlated) with Axon Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Axon Enterprise has no effect on the direction of Yum Brands i.e., Yum Brands and Axon Enterprise go up and down completely randomly.

Pair Corralation between Yum Brands and Axon Enterprise

Assuming the 90 days trading horizon Yum Brands is expected to generate 0.41 times more return on investment than Axon Enterprise. However, Yum Brands is 2.46 times less risky than Axon Enterprise. It trades about 0.16 of its potential returns per unit of risk. Axon Enterprise is currently generating about -0.03 per unit of risk. If you would invest  13,313  in Yum Brands on December 30, 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Yum Brands  vs.  Axon Enterprise

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.

Axon Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Axon Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Yum Brands and Axon Enterprise

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

The idea behind Yum Brands and Axon Enterprise 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 Transaction History module to view history of all your transactions and understand their impact on performance.