Correlation Between Dutch Bros and Yum Brands

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

Diversification Opportunities for Dutch Bros and Yum Brands

0.13
  Correlation Coefficient

Average diversification

The 3 months correlation between Dutch and Yum is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Dutch Bros and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Dutch Bros 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 Dutch Bros are associated (or correlated) with Yum Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum Brands has no effect on the direction of Dutch Bros i.e., Dutch Bros and Yum Brands go up and down completely randomly.

Pair Corralation between Dutch Bros and Yum Brands

Given the investment horizon of 90 days Dutch Bros is expected to generate 5.77 times more return on investment than Yum Brands. However, Dutch Bros is 5.77 times more volatile than Yum Brands. It trades about 0.3 of its potential returns per unit of risk. Yum Brands is currently generating about 0.13 per unit of risk. If you would invest  3,590  in Dutch Bros on August 29, 2024 and sell it today you would earn a total of  1,725  from holding Dutch Bros or generate 48.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Dutch Bros  vs.  Yum Brands

 Performance 
       Timeline  
Dutch Bros 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Dutch Bros are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Dutch Bros unveiled solid returns over the last few months and may actually be approaching a breakup point.
Yum Brands 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Dutch Bros and Yum Brands Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Dutch Bros and Yum Brands

The main advantage of trading using opposite Dutch Bros and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dutch Bros position performs unexpectedly, Yum Brands 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 Yum Brands will offset losses from the drop in Yum Brands' long position.
The idea behind Dutch Bros and Yum Brands 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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