Correlation Between Dow Jones and Yum China
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Yum China 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 China 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 China Holdings, you can compare the effects of market volatilities on Dow Jones and Yum China 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 China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Yum China.
Diversification Opportunities for Dow Jones and Yum China
Poor diversification
The 3 months correlation between Dow and Yum is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Yum China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum China Holdings 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 China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum China Holdings has no effect on the direction of Dow Jones i.e., Dow Jones and Yum China go up and down completely randomly.
Pair Corralation between Dow Jones and Yum China
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.42 times less return on investment than Yum China. But when comparing it to its historical volatility, Dow Jones Industrial is 3.51 times less risky than Yum China. It trades about 0.11 of its potential returns per unit of risk. Yum China Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 3,414 in Yum China Holdings on August 28, 2024 and sell it today you would earn a total of 1,344 from holding Yum China Holdings or generate 39.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Yum China Holdings
Performance |
| Timeline |
Dow Jones and Yum China Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Yum China Holdings
Pair trading matchups for Yum China
Pair Trading with Dow Jones and Yum China
The main advantage of trading using opposite Dow Jones and Yum China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Yum China 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 China will offset losses from the drop in Yum China's long position.| Dow Jones vs. CECO Environmental Corp | Dow Jones vs. Western Acquisition Ventures | Dow Jones vs. Tyson Foods | Dow Jones vs. Inflection Point Acquisition |
| Yum China vs. Darden Restaurants | Yum China vs. The Wendys Co | Yum China vs. Dominos Pizza | Yum China vs. Restaurant Brands International |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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