Correlation Between Starbucks and Yum China
Can any of the company-specific risk be diversified away by investing in both Starbucks 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 Starbucks and Yum China into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Starbucks and Yum China Holdings, you can compare the effects of market volatilities on Starbucks 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 Starbucks with a short position of Yum China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Starbucks and Yum China.
Diversification Opportunities for Starbucks and Yum China
Very weak diversification
The 3 months correlation between Starbucks and Yum is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks 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 Starbucks 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 Starbucks 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 Starbucks i.e., Starbucks and Yum China go up and down completely randomly.
Pair Corralation between Starbucks and Yum China
Given the investment horizon of 90 days Starbucks is expected to generate 1.28 times less return on investment than Yum China. But when comparing it to its historical volatility, Starbucks is 1.82 times less risky than Yum China. It trades about 0.14 of its potential returns per unit of risk. Yum China Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 4,455 in Yum China Holdings on August 29, 2024 and sell it today you would earn a total of 223.00 from holding Yum China Holdings or generate 5.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Starbucks vs. Yum China Holdings
Performance |
| Timeline |
| Starbucks |
| Yum China Holdings |
Starbucks and Yum China Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Starbucks and Yum China
The main advantage of trading using opposite Starbucks and Yum China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks 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.| Starbucks vs. Chipotle Mexican Grill | Starbucks vs. Dominos Pizza | Starbucks vs. Yum Brands | Starbucks vs. The Wendys Co |
| 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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