Correlation Between Yum China and Mitsui Chemicals

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

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

Diversification Opportunities for Yum China and Mitsui Chemicals

0.2

Correlation Coefficient

Yum China  Mitsui Chemicals

Modest diversification

The 3 months correlation between Yum and Mitsui is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals and Yum China 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 China Holdings are associated (or correlated) with Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals has no effect on the direction of Yum China i.e., Yum China and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between Yum China and Mitsui Chemicals

Assuming the 90 days horizon Yum China Holdings is expected to generate 1.63 times more return on investment than Mitsui Chemicals. However, Yum China is 1.63 times more volatile than Mitsui Chemicals. It trades about 0.04 of its potential returns per unit of risk. Mitsui Chemicals is currently generating about -0.02 per unit of risk. If you would invest  4,370  in Yum China Holdings on November 28, 2024 and sell it today you would earn a total of  150.00  from holding Yum China Holdings or generate 3.43% return on investment over 90 days.

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

Yum China Holdings  vs.  Mitsui Chemicals

Yum China Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Yum China is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Mitsui Chemicals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mitsui Chemicals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Mitsui Chemicals is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Yum China and Mitsui Chemicals

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

The idea behind Yum China Holdings and Mitsui Chemicals 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.