Correlation Between Yum China and Brinker International

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

By analyzing existing cross correlation between Yum China Holdings and Brinker International, you can compare the effects of market volatilities on Yum China and Brinker International 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 China with a short position of Brinker International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum China and Brinker International.

Diversification Opportunities for Yum China and Brinker International

0.36

Correlation Coefficient

Yum China  Brinker International

Weak diversification

The 3 months correlation between Yum and Brinker is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and Brinker International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brinker International and Yum China 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 China Holdings are associated (or correlated) with Brinker International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brinker International has no effect on the direction of Yum China i.e., Yum China and Brinker International go up and down completely randomly.

Pair Corralation between Yum China and Brinker International

Given the investment horizon of 90 days Yum China Holdings is expected to under-perform the Brinker International. But the stock apears to be less risky and, when comparing its historical volatility, Yum China Holdings is 1.19 times less risky than Brinker International. The stock trades about -0.17 of its potential returns per unit of risk. The Brinker International is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  12,985  in Brinker International on October 7, 2024 and sell it today you would earn a total of  1,129  from holding Brinker International or generate 8.69% return on investment over 90 days.

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

Yum China Holdings  vs.  Brinker International

Yum China Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yum China Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Brinker International

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Brinker International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yum China and Brinker International

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

The idea behind Yum China Holdings and Brinker International 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.