Correlation Between Urban Outfitters and Yum Brands

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

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

Diversification Opportunities for Urban Outfitters and Yum Brands

-0.29

Correlation Coefficient

Urban Outfitters  Yum Brands

Very good diversification

The 3 months correlation between Urban and Yum is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Urban Outfitters and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Urban Outfitters 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 Urban Outfitters 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 Urban Outfitters i.e., Urban Outfitters and Yum Brands go up and down completely randomly.

Pair Corralation between Urban Outfitters and Yum Brands

Assuming the 90 days horizon Urban Outfitters is expected to under-perform the Yum Brands. In addition to that, Urban Outfitters is 2.11 times more volatile than Yum Brands. It trades about -0.05 of its total potential returns per unit of risk. Yum Brands is currently generating about 0.17 per unit of volatility. If you would invest  12,464  in Yum Brands on December 20, 2024 and sell it today you would earn a total of  1,996  from holding Yum Brands or generate 16.01% return on investment over 90 days.

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

Urban Outfitters  vs.  Yum Brands

Urban Outfitters

Risk-Adjusted Performance

Very Weak

Over the last 90 days Urban Outfitters has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Yum Brands

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Yum Brands reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Urban Outfitters and Yum Brands

The main advantage of trading using opposite Urban Outfitters and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Urban Outfitters 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 Urban Outfitters 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.