Correlation Between Yum China and Sonder Holdings

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

Diversification Opportunities for Yum China and Sonder Holdings

-0.15

Correlation Coefficient

Yum China  Sonder Holdings

Good diversification

The 3 months correlation between Yum and Sonder is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and Sonder Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonder Holdings 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 Sonder Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonder Holdings has no effect on the direction of Yum China i.e., Yum China and Sonder Holdings go up and down completely randomly.

Pair Corralation between Yum China and Sonder Holdings

Given the investment horizon of 90 days Yum China is expected to generate 3.92 times less return on investment than Sonder Holdings. But when comparing it to its historical volatility, Yum China Holdings is 5.96 times less risky than Sonder Holdings. It trades about 0.09 of its potential returns per unit of risk. Sonder Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  0.62  in Sonder Holdings on December 28, 2024 and sell it today you would lose (0.03) from holding Sonder Holdings or give up 4.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.0%
Values	Daily Returns

Yum China Holdings  vs.  Sonder Holdings

Yum China Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 6 (%) 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.

Sonder Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sonder Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, Sonder Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yum China and Sonder Holdings

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

The idea behind Yum China Holdings and Sonder 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.