Correlation Between Yum Brands and McDonalds
Can any of the company-specific risk be diversified away by investing in both Yum Brands and McDonalds 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 McDonalds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yum Brands and McDonalds, you can compare the effects of market volatilities on Yum Brands and McDonalds 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 McDonalds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum Brands and McDonalds.
Diversification Opportunities for Yum Brands and McDonalds
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Yum and McDonalds is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and McDonalds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds 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 McDonalds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds has no effect on the direction of Yum Brands i.e., Yum Brands and McDonalds go up and down completely randomly.
Pair Corralation between Yum Brands and McDonalds
Assuming the 90 days horizon Yum Brands is expected to generate 1.21 times more return on investment than McDonalds. However, Yum Brands is 1.21 times more volatile than McDonalds. It trades about 0.22 of its potential returns per unit of risk. McDonalds is currently generating about 0.21 per unit of risk. If you would invest 12,365 in Yum Brands on August 31, 2024 and sell it today you would earn a total of 805.00 from holding Yum Brands or generate 6.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yum Brands vs. McDonalds
Performance |
| Timeline |
| Yum Brands |
| McDonalds |
Yum Brands and McDonalds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yum Brands and McDonalds
The main advantage of trading using opposite Yum Brands and McDonalds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum Brands position performs unexpectedly, McDonalds 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 McDonalds will offset losses from the drop in McDonalds' long position.| Yum Brands vs. McDonalds | Yum Brands vs. Starbucks | Yum Brands vs. Starbucks | Yum Brands vs. Compass Group PLC |
| McDonalds vs. Chiba Bank | McDonalds vs. InterContinental Hotels Group | McDonalds vs. NH HOTEL GROUP | McDonalds vs. The Hanover Insurance |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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