Correlation Between McDonalds and Yum China
Can any of the company-specific risk be diversified away by investing in both McDonalds 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 McDonalds and Yum China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Yum China Holdings, you can compare the effects of market volatilities on McDonalds 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 McDonalds with a short position of Yum China. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Yum China.
Diversification Opportunities for McDonalds and Yum China
Very weak diversification
The 3 months correlation between McDonalds and Yum is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds 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 McDonalds 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 McDonalds 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 McDonalds i.e., McDonalds and Yum China go up and down completely randomly.
Pair Corralation between McDonalds and Yum China
Considering the 90-day investment horizon McDonalds is expected to under-perform the Yum China. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 2.21 times less risky than Yum China. The stock trades about -0.05 of its potential returns per unit of risk. The Yum China Holdings is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 4,487 in Yum China Holdings on August 30, 2024 and sell it today you would earn a total of 191.00 from holding Yum China Holdings or generate 4.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
McDonalds vs. Yum China Holdings
Performance |
| Timeline |
| McDonalds |
| Yum China Holdings |
McDonalds and Yum China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Yum China
The main advantage of trading using opposite McDonalds and Yum China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds 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.| McDonalds vs. Chipotle Mexican Grill | McDonalds vs. Dutch Bros | McDonalds vs. Dominos Pizza | McDonalds vs. Yum Brands |
| 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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