Correlation Between Yum Brands and LuxUrban Hotels

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

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

Diversification Opportunities for Yum Brands and LuxUrban Hotels

0.06

Correlation Coefficient

Yum Brands  LuxUrban Hotels

Significant diversification

The 3 months correlation between Yum and LuxUrban is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and LuxUrban Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LuxUrban Hotels 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 LuxUrban Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LuxUrban Hotels has no effect on the direction of Yum Brands i.e., Yum Brands and LuxUrban Hotels go up and down completely randomly.

Pair Corralation between Yum Brands and LuxUrban Hotels

Considering the 90-day investment horizon Yum Brands is expected to generate 0.07 times more return on investment than LuxUrban Hotels. However, Yum Brands is 13.44 times less risky than LuxUrban Hotels. It trades about -0.14 of its potential returns per unit of risk. LuxUrban Hotels is currently generating about -0.19 per unit of risk. If you would invest  13,357  in Yum Brands on October 22, 2024 and sell it today you would lose (825.00) from holding Yum Brands or give up 6.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	97.5%
Values	Daily Returns

Yum Brands  vs.  LuxUrban Hotels

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.

LuxUrban Hotels

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LuxUrban Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Yum Brands and LuxUrban Hotels

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

The idea behind Yum Brands and LuxUrban Hotels 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.

Check out your portfolio center.

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 Equity Valuation module to check real value of public entities based on technical and fundamental data.