Correlation Between Yum Brands and Choice Hotels
Can any of the company-specific risk be diversified away by investing in both Yum Brands and Choice Hotels 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 Yum Brands and Choice Hotels into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yum Brands and Choice Hotels International, you can compare the effects of market volatilities on Yum Brands and Choice Hotels 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 Yum Brands with a short position of Choice Hotels. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum Brands and Choice Hotels.
Diversification Opportunities for Yum Brands and Choice Hotels
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Yum and Choice is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and Choice Hotels International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice Hotels Intern and Yum Brands 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 Yum Brands are associated (or correlated) with Choice Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice Hotels Intern has no effect on the direction of Yum Brands i.e., Yum Brands and Choice Hotels go up and down completely randomly.
Pair Corralation between Yum Brands and Choice Hotels
Assuming the 90 days horizon Yum Brands is expected to generate 9.89 times less return on investment than Choice Hotels. But when comparing it to its historical volatility, Yum Brands is 1.47 times less risky than Choice Hotels. It trades about 0.02 of its potential returns per unit of risk. Choice Hotels International is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 10,148 in Choice Hotels International on September 3, 2024 and sell it today you would earn a total of 3,952 from holding Choice Hotels International or generate 38.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yum Brands vs. Choice Hotels International
Performance |
| Timeline |
| Yum Brands |
| Choice Hotels Intern |
Yum Brands and Choice Hotels Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yum Brands and Choice Hotels
The main advantage of trading using opposite Yum Brands and Choice Hotels positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum Brands position performs unexpectedly, Choice Hotels 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 Choice Hotels will offset losses from the drop in Choice Hotels' long position.| Yum Brands vs. Lion One Metals | Yum Brands vs. SCIENCE IN SPORT | Yum Brands vs. Transport International Holdings | Yum Brands vs. PARKEN Sport Entertainment |
| Choice Hotels vs. Check Point Software | Choice Hotels vs. AXWAY SOFTWARE EO | Choice Hotels vs. ECHO INVESTMENT ZY | Choice Hotels vs. Take Two Interactive Software |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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