Correlation Between Yum Brands and Exelon Corp

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

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

Diversification Opportunities for Yum Brands and Exelon Corp

0.91

Correlation Coefficient

Yum Brands  Exelon Corp

Almost no diversification

The 3 months correlation between Yum and Exelon is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and Exelon Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exelon Corp 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 Exelon Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exelon Corp has no effect on the direction of Yum Brands i.e., Yum Brands and Exelon Corp go up and down completely randomly.

Pair Corralation between Yum Brands and Exelon Corp

Assuming the 90 days trading horizon Yum Brands is expected to generate 1.21 times less return on investment than Exelon Corp. In addition to that, Yum Brands is 1.34 times more volatile than Exelon Corp. It trades about 0.16 of its total potential returns per unit of risk. Exelon Corp is currently generating about 0.26 per unit of volatility. If you would invest  3,680  in Exelon Corp on December 30, 2024 and sell it today you would earn a total of  802.00  from holding Exelon Corp or generate 21.79% return on investment over 90 days.

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

Yum Brands  vs.  Exelon Corp

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 unsteady basic indicators, Yum Brands unveiled solid returns over the last few months and may actually be approaching a breakup point.

Exelon Corp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Exelon Corp are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Exelon Corp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yum Brands and Exelon Corp

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

The idea behind Yum Brands and Exelon Corp 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.