Correlation Between McDonalds and Yum Brands
Can any of the company-specific risk be diversified away by investing in both McDonalds 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 McDonalds and Yum Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between McDonalds and Yum Brands, you can compare the effects of market volatilities on McDonalds 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 McDonalds with a short position of Yum Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of McDonalds and Yum Brands.
Diversification Opportunities for McDonalds and Yum Brands
0.54 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between McDonalds and Yum is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands 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 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 McDonalds i.e., McDonalds and Yum Brands go up and down completely randomly.
Pair Corralation between McDonalds and Yum Brands
Assuming the 90 days horizon McDonalds is expected to generate 1.25 times less return on investment than Yum Brands. But when comparing it to its historical volatility, McDonalds is 1.05 times less risky than Yum Brands. It trades about 0.1 of its potential returns per unit of risk. Yum Brands is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 12,155 in Yum Brands on September 2, 2024 and sell it today you would earn a total of 1,130 from holding Yum Brands or generate 9.3% 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 Brands
Performance |
| Timeline |
| McDonalds |
| Yum Brands |
McDonalds and Yum Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with McDonalds and Yum Brands
The main advantage of trading using opposite McDonalds and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds 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.| McDonalds vs. Bumrungrad Hospital Public | McDonalds vs. Renesas Electronics | McDonalds vs. LPKF Laser Electronics | McDonalds vs. ATRYS HEALTH SA |
| Yum Brands vs. Park Hotels Resorts | Yum Brands vs. Wyndham Hotels Resorts | Yum Brands vs. Sunstone Hotel Investors | Yum Brands vs. Choice Hotels 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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