Correlation Between Yum Brands and IDEXX Laboratories

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

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

Diversification Opportunities for Yum Brands and IDEXX Laboratories

-0.23

Correlation Coefficient

Yum Brands  IDEXX Laboratories

Very good diversification

The 3 months correlation between Yum and IDEXX is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and IDEXX Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDEXX Laboratories 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 IDEXX Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDEXX Laboratories has no effect on the direction of Yum Brands i.e., Yum Brands and IDEXX Laboratories go up and down completely randomly.

Pair Corralation between Yum Brands and IDEXX Laboratories

Assuming the 90 days trading horizon Yum Brands is expected to generate 0.68 times more return on investment than IDEXX Laboratories. However, Yum Brands is 1.48 times less risky than IDEXX Laboratories. It trades about 0.05 of its potential returns per unit of risk. IDEXX Laboratories is currently generating about -0.14 per unit of risk. If you would invest  13,211  in Yum Brands on September 17, 2024 and sell it today you would earn a total of  467.00  from holding Yum Brands or generate 3.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Yum Brands  vs.  IDEXX Laboratories

Yum Brands

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Yum Brands is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

IDEXX Laboratories

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IDEXX Laboratories has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Yum Brands and IDEXX Laboratories

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

The idea behind Yum Brands and IDEXX Laboratories 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.