Correlation Between Yum Brands and Bt Brands

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

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

Diversification Opportunities for Yum Brands and Bt Brands

-0.38

Correlation Coefficient

Yum Brands  Bt Brands

Very good diversification

The 3 months correlation between Yum and BTBD is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and Bt Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bt Brands 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 Bt Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bt Brands has no effect on the direction of Yum Brands i.e., Yum Brands and Bt Brands go up and down completely randomly.

Pair Corralation between Yum Brands and Bt Brands

Considering the 90-day investment horizon Yum Brands is expected to generate 0.27 times more return on investment than Bt Brands. However, Yum Brands is 3.68 times less risky than Bt Brands. It trades about 0.16 of its potential returns per unit of risk. Bt Brands is currently generating about 0.03 per unit of risk. If you would invest  13,536  in Yum Brands on December 26, 2024 and sell it today you would earn a total of  2,332  from holding Yum Brands or generate 17.23% return on investment over 90 days.

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

Yum Brands  vs.  Bt Brands

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 weak basic indicators, Yum Brands displayed solid returns over the last few months and may actually be approaching a breakup point.

Bt Brands

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bt Brands are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Bt Brands may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Yum Brands and Bt Brands

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

The idea behind Yum Brands and Bt 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.