Correlation Between Yum Brands and Bagger Daves

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

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

Diversification Opportunities for Yum Brands and Bagger Daves

0.1

Correlation Coefficient

Yum Brands  Bagger Daves

Average diversification

The 3 months correlation between Yum and Bagger is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and Bagger Daves Burger in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bagger Daves Burger and Yum 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 Yum Brands are associated (or correlated) with Bagger Daves. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bagger Daves Burger has no effect on the direction of Yum Brands i.e., Yum Brands and Bagger Daves go up and down completely randomly.

Pair Corralation between Yum Brands and Bagger Daves

Considering the 90-day investment horizon Yum Brands is expected to generate 37.65 times less return on investment than Bagger Daves. But when comparing it to its historical volatility, Yum Brands is 6.71 times less risky than Bagger Daves. It trades about 0.0 of its potential returns per unit of risk. Bagger Daves Burger is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8.05  in Bagger Daves Burger on October 22, 2024 and sell it today you would lose (1.87) from holding Bagger Daves Burger or give up 23.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.4%
Values	Daily Returns

Yum Brands  vs.  Bagger Daves Burger

Yum Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yum Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Yum Brands is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Bagger Daves Burger

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bagger Daves Burger has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bagger Daves is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Yum Brands and Bagger Daves

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

The idea behind Yum Brands and Bagger Daves Burger 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.