Correlation Between Restaurant Brands and Yum Brands

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

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

Diversification Opportunities for Restaurant Brands and Yum Brands

0.82

Correlation Coefficient

Restaurant Brands  Yum Brands

Very poor diversification

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

Pair Corralation between Restaurant Brands and Yum Brands

Considering the 90-day investment horizon Restaurant Brands is expected to generate 16.1 times less return on investment than Yum Brands. But when comparing it to its historical volatility, Restaurant Brands International is 1.13 times less risky than Yum Brands. It trades about 0.01 of its potential returns per unit of risk. Yum Brands is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  13,289  in Yum Brands on December 28, 2024 and sell it today you would earn a total of  2,287  from holding Yum Brands or generate 17.21% return on investment over 90 days.

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

Restaurant Brands Internationa  vs.  Yum Brands

Restaurant Brands

Risk-Adjusted Performance

OK

Over the last 90 days Restaurant Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Restaurant Brands is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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 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 Restaurant Brands and Yum Brands

The main advantage of trading using opposite Restaurant Brands and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Restaurant Brands 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 Restaurant Brands International 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.