Correlation Between Yum China and Gourmet Provisions

Can any of the company-specific risk be diversified away by investing in both Yum China and Gourmet Provisions 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 Gourmet Provisions 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 Gourmet Provisions International, you can compare the effects of market volatilities on Yum China and Gourmet Provisions 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 Gourmet Provisions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum China and Gourmet Provisions.

Diversification Opportunities for Yum China and Gourmet Provisions

-0.6

Correlation Coefficient

Yum China  Gourmet Provisions

Excellent diversification

The 3 months correlation between Yum and Gourmet is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and Gourmet Provisions Internation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gourmet Provisions 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 Gourmet Provisions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gourmet Provisions has no effect on the direction of Yum China i.e., Yum China and Gourmet Provisions go up and down completely randomly.

Pair Corralation between Yum China and Gourmet Provisions

Given the investment horizon of 90 days Yum China is expected to generate 8.4 times less return on investment than Gourmet Provisions. But when comparing it to its historical volatility, Yum China Holdings is 12.05 times less risky than Gourmet Provisions. It trades about 0.18 of its potential returns per unit of risk. Gourmet Provisions International is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Gourmet Provisions International on August 31, 2024 and sell it today you would lose (0.01) from holding Gourmet Provisions International or give up 50.0% of portfolio value over 90 days.

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

Yum China Holdings  vs.  Gourmet Provisions Internation

Yum China Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather sluggish primary indicators, Yum China exhibited solid returns over the last few months and may actually be approaching a breakup point.

Gourmet Provisions

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gourmet Provisions International are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, Gourmet Provisions reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yum China and Gourmet Provisions

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

The idea behind Yum China Holdings and Gourmet Provisions 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.