Correlation Between Yum China and Papa Johns

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

Diversification Opportunities for Yum China and Papa Johns

0.54

Correlation Coefficient

Yum China  Papa Johns

Very weak diversification

The 3 months correlation between Yum and Papa is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and Papa Johns International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Papa Johns 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 Papa Johns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Papa Johns International has no effect on the direction of Yum China i.e., Yum China and Papa Johns go up and down completely randomly.

Pair Corralation between Yum China and Papa Johns

Given the investment horizon of 90 days Yum China is expected to generate 1.17 times less return on investment than Papa Johns. But when comparing it to its historical volatility, Yum China Holdings is 1.77 times less risky than Papa Johns. It trades about 0.06 of its potential returns per unit of risk. Papa Johns International is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,903  in Papa Johns International on December 27, 2024 and sell it today you would earn a total of  176.00  from holding Papa Johns International or generate 4.51% return on investment over 90 days.

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

Yum China Holdings  vs.  Papa Johns International

Yum China Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, Yum China may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Papa Johns International

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Papa Johns International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Papa Johns may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Yum China and Papa Johns

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

The idea behind Yum China Holdings and Papa Johns 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.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.