Correlation Between Pembina Pipeline and Yum Brands

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

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

Diversification Opportunities for Pembina Pipeline and Yum Brands

0.82

Correlation Coefficient

Pembina Pipeline  Yum Brands

Very poor diversification

The 3 months correlation between Pembina and Yum is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Pembina Pipeline and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Pembina Pipeline 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 Pembina Pipeline 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 Pembina Pipeline i.e., Pembina Pipeline and Yum Brands go up and down completely randomly.

Pair Corralation between Pembina Pipeline and Yum Brands

Assuming the 90 days horizon Pembina Pipeline is expected to generate 21.14 times less return on investment than Yum Brands. But when comparing it to its historical volatility, Pembina Pipeline is 9.37 times less risky than Yum Brands. It trades about 0.08 of its potential returns per unit of risk. Yum Brands is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  13,174  in Yum Brands on December 20, 2024 and sell it today you would earn a total of  2,577  from holding Yum Brands or generate 19.56% return on investment over 90 days.

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

Pembina Pipeline  vs.  Yum Brands

Pembina Pipeline

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pembina Pipeline are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Pembina Pipeline is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Yum Brands

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Yum Brands displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pembina Pipeline and Yum Brands

The main advantage of trading using opposite Pembina Pipeline and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pembina Pipeline 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 Pembina Pipeline 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.