Correlation Between Restaurant Brands and Yum China

Can any of the company-specific risk be diversified away by investing in both Restaurant Brands and Yum China 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 China 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 China Holdings, you can compare the effects of market volatilities on Restaurant Brands and Yum China 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 China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Restaurant Brands and Yum China.

Diversification Opportunities for Restaurant Brands and Yum China

0.86

Correlation Coefficient

Restaurant Brands  Yum China

Very poor diversification

The 3 months correlation between Restaurant and Yum is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Restaurant Brands Internationa and Yum China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum China Holdings 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 China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum China Holdings has no effect on the direction of Restaurant Brands i.e., Restaurant Brands and Yum China go up and down completely randomly.

Pair Corralation between Restaurant Brands and Yum China

Considering the 90-day investment horizon Restaurant Brands is expected to generate 1.64 times less return on investment than Yum China. But when comparing it to its historical volatility, Restaurant Brands International is 1.72 times less risky than Yum China. It trades about 0.09 of its potential returns per unit of risk. Yum China Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,799  in Yum China Holdings on December 29, 2024 and sell it today you would earn a total of  518.00  from holding Yum China Holdings or generate 10.79% 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 China Holdings

Restaurant Brands

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Restaurant Brands International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Restaurant Brands may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Yum China Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, Yum China may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Restaurant Brands and Yum China

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

The idea behind Restaurant Brands International and Yum China Holdings 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..