Correlation Between Biglari Holdings and Yum Brands

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

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

Diversification Opportunities for Biglari Holdings and Yum Brands

0.5

Correlation Coefficient

Biglari Holdings  Yum Brands

Very weak diversification

The 3 months correlation between Biglari and Yum is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Biglari Holdings and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Biglari Holdings 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 Biglari Holdings are associated (or correlated) with Yum Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum Brands has no effect on the direction of Biglari Holdings i.e., Biglari Holdings and Yum Brands go up and down completely randomly.

Pair Corralation between Biglari Holdings and Yum Brands

Allowing for the 90-day total investment horizon Biglari Holdings is expected to generate 2.16 times more return on investment than Yum Brands. However, Biglari Holdings is 2.16 times more volatile than Yum Brands. It trades about 0.32 of its potential returns per unit of risk. Yum Brands is currently generating about 0.08 per unit of risk. If you would invest  21,000  in Biglari Holdings on September 17, 2024 and sell it today you would earn a total of  2,624  from holding Biglari Holdings or generate 12.5% return on investment over 90 days.

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

Biglari Holdings  vs.  Yum Brands

Biglari Holdings

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Biglari Holdings are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Biglari Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Yum Brands

Risk-Adjusted Performance

4 of 100

Modest

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 very healthy basic indicators, Yum Brands is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Biglari Holdings and Yum Brands

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

The idea behind Biglari Holdings and Yum Brands 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.