Correlation Between PACIFIC and Yum Brands

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

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

Diversification Opportunities for PACIFIC and Yum Brands

0.09

Correlation Coefficient

PACIFIC  Yum Brands

Significant diversification

The 3 months correlation between PACIFIC and Yum is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding PACIFIC GAS AND and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and PACIFIC 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 PACIFIC GAS AND 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 PACIFIC i.e., PACIFIC and Yum Brands go up and down completely randomly.

Pair Corralation between PACIFIC and Yum Brands

Assuming the 90 days trading horizon PACIFIC GAS AND is expected to under-perform the Yum Brands. But the bond apears to be less risky and, when comparing its historical volatility, PACIFIC GAS AND is 1.42 times less risky than Yum Brands. The bond trades about -0.13 of its potential returns per unit of risk. The Yum Brands is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  13,323  in Yum Brands on December 23, 2024 and sell it today you would earn a total of  2,352  from holding Yum Brands or generate 17.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

PACIFIC GAS AND  vs.  Yum Brands

PACIFIC GAS AND

Risk-Adjusted Performance

Very Weak

Over the last 90 days PACIFIC GAS AND has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for PACIFIC GAS AND 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 PACIFIC and Yum Brands

The main advantage of trading using opposite PACIFIC and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACIFIC 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 PACIFIC GAS AND 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.