Correlation Between Yum Brands and First Watch

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Can any of the company-specific risk be diversified away by investing in both Yum Brands and First Watch 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 First Watch into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yum Brands and First Watch Restaurant, you can compare the effects of market volatilities on Yum Brands and First Watch 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 First Watch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum Brands and First Watch.

Diversification Opportunities for Yum Brands and First Watch

YumFirstDiversified AwayYumFirstDiversified Away100%
0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between Yum and First is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant 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 First Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of Yum Brands i.e., Yum Brands and First Watch go up and down completely randomly.

Pair Corralation between Yum Brands and First Watch

Considering the 90-day investment horizon Yum Brands is expected to under-perform the First Watch. But the stock apears to be less risky and, when comparing its historical volatility, Yum Brands is 3.04 times less risky than First Watch. The stock trades about -0.12 of its potential returns per unit of risk. The First Watch Restaurant is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,437  in First Watch Restaurant on October 14, 2024 and sell it today you would earn a total of  475.00  from holding First Watch Restaurant or generate 33.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Yum Brands  vs.  First Watch Restaurant

 Performance 
JavaScript chart by amCharts 3.21.15OctNovDec 01020304050
JavaScript chart by amCharts 3.21.15YUM FWRG
       Timeline  
Yum Brands 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 latest conflicting performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan124126128130132134136138140
First Watch Restaurant 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15NovDecJanDecJan1516171819202122

Yum Brands and First Watch Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.81-1.38-0.95-0.52-0.090.250.681.111.541.97 0.050.100.150.200.250.300.35
JavaScript chart by amCharts 3.21.15YUM FWRG
       Returns  

Pair Trading with Yum Brands and First Watch

The main advantage of trading using opposite Yum Brands and First Watch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum Brands position performs unexpectedly, First Watch 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 First Watch will offset losses from the drop in First Watch's long position.
The idea behind Yum Brands and First Watch Restaurant 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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