Correlation Between Nathans Famous and Yum Brands
Can any of the company-specific risk be diversified away by investing in both Nathans Famous 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 Nathans Famous and Yum Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nathans Famous and Yum Brands, you can compare the effects of market volatilities on Nathans Famous 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 Nathans Famous with a short position of Yum Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nathans Famous and Yum Brands.
Diversification Opportunities for Nathans Famous and Yum Brands
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Nathans and Yum is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Nathans Famous and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Nathans Famous 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 Nathans Famous 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 Nathans Famous i.e., Nathans Famous and Yum Brands go up and down completely randomly.
Pair Corralation between Nathans Famous and Yum Brands
Given the investment horizon of 90 days Nathans Famous is expected to under-perform the Yum Brands. In addition to that, Nathans Famous is 1.95 times more volatile than Yum Brands. It trades about -0.05 of its total potential returns per unit of risk. Yum Brands is currently generating about 0.16 per unit of volatility. If you would invest 13,461 in Yum Brands on September 14, 2024 and sell it today you would earn a total of 393.00 from holding Yum Brands or generate 2.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nathans Famous vs. Yum Brands
Performance |
| Timeline |
| Nathans Famous |
| Yum Brands |
Nathans Famous and Yum Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nathans Famous and Yum Brands
The main advantage of trading using opposite Nathans Famous and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nathans Famous 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 Nathans Famous 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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