Correlation Between Dow Jones and Yum Brands
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Yum Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Yum Brands, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Yum Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Yum Brands.
Diversification Opportunities for Dow Jones and Yum Brands
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Dow and Yum is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Yum Brands go up and down completely randomly.
Pair Corralation between Dow Jones and Yum Brands
Assuming the 90 days trading horizon Dow Jones Industrial is expected to generate 0.71 times more return on investment than Yum Brands. However, Dow Jones Industrial is 1.41 times less risky than Yum Brands. It trades about 0.3 of its potential returns per unit of risk. Yum Brands is currently generating about -0.02 per unit of risk. If you would invest 4,270,656 in Dow Jones Industrial on November 5, 2024 and sell it today you would earn a total of 183,810 from holding Dow Jones Industrial or generate 4.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 90.48% |
| Values | Daily Returns |
Dow Jones Industrial vs. Yum Brands
Performance |
| Timeline |
Dow Jones and Yum Brands Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Yum Brands
Pair trading matchups for Yum Brands
Pair Trading with Dow Jones and Yum Brands
The main advantage of trading using opposite Dow Jones and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Fernhill Beverage | Dow Jones vs. Fomento Economico Mexicano | Dow Jones vs. Loud Beverage Group | Dow Jones vs. Diageo PLC ADR |
| Yum Brands vs. GreenX Metals | Yum Brands vs. Dalata Hotel Group | Yum Brands vs. Coeur Mining | Yum Brands vs. Adriatic Metals |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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