Correlation Between Yum Brands and Compass Group

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

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

Diversification Opportunities for Yum Brands and Compass Group

0.24

Correlation Coefficient

Yum Brands  Compass Group

Modest diversification

The 3 months correlation between Yum and Compass is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and Compass Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Group PLC 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 Compass Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Group PLC has no effect on the direction of Yum Brands i.e., Yum Brands and Compass Group go up and down completely randomly.

Pair Corralation between Yum Brands and Compass Group

Considering the 90-day investment horizon Yum Brands is expected to generate 6.73 times less return on investment than Compass Group. But when comparing it to its historical volatility, Yum Brands is 1.57 times less risky than Compass Group. It trades about 0.01 of its potential returns per unit of risk. Compass Group PLC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,713  in Compass Group PLC on October 3, 2024 and sell it today you would earn a total of  586.00  from holding Compass Group PLC or generate 21.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.48%
Values	Daily Returns

Yum Brands  vs.  Compass Group PLC

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 current stock price disarray, may contribute to short-term losses for the investors.

Compass Group PLC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Compass Group PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Compass Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Yum Brands and Compass Group

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

The idea behind Yum Brands and Compass Group PLC 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.