Correlation Between Yum Brands and Newpark Resources

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

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

Diversification Opportunities for Yum Brands and Newpark Resources

0.51

Correlation Coefficient

Yum Brands  Newpark Resources

Very weak diversification

The 3 months correlation between Yum and Newpark is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and Newpark Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newpark Resources 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 Newpark Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newpark Resources has no effect on the direction of Yum Brands i.e., Yum Brands and Newpark Resources go up and down completely randomly.

Pair Corralation between Yum Brands and Newpark Resources

Considering the 90-day investment horizon Yum Brands is expected to generate 1.26 times less return on investment than Newpark Resources. But when comparing it to its historical volatility, Yum Brands is 2.35 times less risky than Newpark Resources. It trades about 0.06 of its potential returns per unit of risk. Newpark Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  747.00  in Newpark Resources on September 17, 2024 and sell it today you would earn a total of  27.00  from holding Newpark Resources or generate 3.61% return on investment over 90 days.

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

Yum Brands  vs.  Newpark Resources

Yum Brands

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. 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.

Newpark Resources

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Newpark Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Newpark Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Yum Brands and Newpark Resources

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

The idea behind Yum Brands and Newpark Resources 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.