Correlation Between Carsales and Yum Brands
Can any of the company-specific risk be diversified away by investing in both Carsales 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 Carsales and Yum Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carsales and Yum Brands, you can compare the effects of market volatilities on Carsales 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 Carsales with a short position of Yum Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and Yum Brands.
Diversification Opportunities for Carsales and Yum Brands
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Carsales and Yum is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Carsales 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 Carsales 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 Carsales i.e., Carsales and Yum Brands go up and down completely randomly.
Pair Corralation between Carsales and Yum Brands
Assuming the 90 days trading horizon Carsales is expected to generate 0.95 times more return on investment than Yum Brands. However, Carsales is 1.05 times less risky than Yum Brands. It trades about 0.39 of its potential returns per unit of risk. Yum Brands is currently generating about 0.23 per unit of risk. If you would invest 2,280 in Carsales on August 29, 2024 and sell it today you would earn a total of 280.00 from holding Carsales or generate 12.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Carsales vs. Yum Brands
Performance |
| Timeline |
| Carsales |
| Yum Brands |
Carsales and Yum Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Carsales and Yum Brands
The main advantage of trading using opposite Carsales and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales 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.| Carsales vs. Performance Food Group | Carsales vs. TreeHouse Foods | Carsales vs. Food Life Companies | Carsales vs. MCEWEN MINING INC |
| Yum Brands vs. Commercial Vehicle Group | Yum Brands vs. JD SPORTS FASH | Yum Brands vs. CARSALESCOM | Yum Brands vs. Carsales |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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