Correlation Between COMPASS GROUP and Yum China

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

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

Diversification Opportunities for COMPASS GROUP and Yum China

0.1

Correlation Coefficient

COMPASS GROUP  Yum China

Average diversification

The 3 months correlation between COMPASS and Yum is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding COMPASS GROUP 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 COMPASS GROUP 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 COMPASS GROUP 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 COMPASS GROUP i.e., COMPASS GROUP and Yum China go up and down completely randomly.

Pair Corralation between COMPASS GROUP and Yum China

Assuming the 90 days horizon COMPASS GROUP is expected to under-perform the Yum China. But the stock apears to be less risky and, when comparing its historical volatility, COMPASS GROUP is 1.17 times less risky than Yum China. The stock trades about -0.03 of its potential returns per unit of risk. The Yum China Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,755  in Yum China Holdings on December 25, 2024 and sell it today you would lose (8.00) from holding Yum China Holdings or give up 0.17% of portfolio value over 90 days.

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

COMPASS GROUP  vs.  Yum China Holdings

COMPASS GROUP

Risk-Adjusted Performance

Very Weak

Over the last 90 days COMPASS GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, COMPASS GROUP is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Yum China Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Yum China Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Yum China is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with COMPASS GROUP and Yum China

The main advantage of trading using opposite COMPASS GROUP and Yum China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COMPASS GROUP 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 COMPASS GROUP 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.