Correlation Between Yum Brands and Q2 Holdings

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Can any of the company-specific risk be diversified away by investing in both Yum Brands and Q2 Holdings 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 Q2 Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yum Brands and Q2 Holdings, you can compare the effects of market volatilities on Yum Brands and Q2 Holdings 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 Q2 Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum Brands and Q2 Holdings.

Diversification Opportunities for Yum Brands and Q2 Holdings

0.39
  Correlation Coefficient

Weak diversification

The 3 months correlation between Yum and QTWO is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and Q2 Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Q2 Holdings 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 Q2 Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Q2 Holdings has no effect on the direction of Yum Brands i.e., Yum Brands and Q2 Holdings go up and down completely randomly.

Pair Corralation between Yum Brands and Q2 Holdings

Considering the 90-day investment horizon Yum Brands is expected to under-perform the Q2 Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Yum Brands is 1.72 times less risky than Q2 Holdings. The stock trades about -0.16 of its potential returns per unit of risk. The Q2 Holdings is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  10,736  in Q2 Holdings on September 24, 2024 and sell it today you would lose (267.00) from holding Q2 Holdings or give up 2.49% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Yum Brands  vs.  Q2 Holdings

 Performance 
       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 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.
Q2 Holdings 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Q2 Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Q2 Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Yum Brands and Q2 Holdings Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Yum Brands and Q2 Holdings

The main advantage of trading using opposite Yum Brands and Q2 Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum Brands position performs unexpectedly, Q2 Holdings 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 Q2 Holdings will offset losses from the drop in Q2 Holdings' long position.
The idea behind Yum Brands and Q2 Holdings 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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