Correlation Between Yum Brands and Optima Health

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

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

Diversification Opportunities for Yum Brands and Optima Health

0.95

Correlation Coefficient

Yum Brands  Optima Health

Almost no diversification

The 3 months correlation between Yum and Optima is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and Optima Health plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optima Health plc 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 Optima Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optima Health plc has no effect on the direction of Yum Brands i.e., Yum Brands and Optima Health go up and down completely randomly.

Pair Corralation between Yum Brands and Optima Health

Assuming the 90 days trading horizon Yum Brands is expected to generate 1.18 times less return on investment than Optima Health. But when comparing it to its historical volatility, Yum Brands is 1.11 times less risky than Optima Health. It trades about 0.16 of its potential returns per unit of risk. Optima Health plc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  14,200  in Optima Health plc on December 30, 2024 and sell it today you would earn a total of  2,900  from holding Optima Health plc or generate 20.42% 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.  Optima Health plc

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.

Optima Health plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Optima Health plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Optima Health exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yum Brands and Optima Health

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

The idea behind Yum Brands and Optima Health plc 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.