Correlation Between Yum China and FAT Brands
Can any of the company-specific risk be diversified away by investing in both Yum China and FAT 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 Yum China and FAT Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yum China Holdings and FAT Brands, you can compare the effects of market volatilities on Yum China and FAT 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 Yum China with a short position of FAT Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum China and FAT Brands.
Diversification Opportunities for Yum China and FAT Brands
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Yum and FAT is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Yum China 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 China Holdings are associated (or correlated) with FAT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAT Brands has no effect on the direction of Yum China i.e., Yum China and FAT Brands go up and down completely randomly.
Pair Corralation between Yum China and FAT Brands
Given the investment horizon of 90 days Yum China Holdings is expected to under-perform the FAT Brands. But the stock apears to be less risky and, when comparing its historical volatility, Yum China Holdings is 3.04 times less risky than FAT Brands. The stock trades about -0.05 of its potential returns per unit of risk. The FAT Brands is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest 440.00 in FAT Brands on November 1, 2024 and sell it today you would earn a total of 267.00 from holding FAT Brands or generate 60.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yum China Holdings vs. FAT Brands
Performance |
| Timeline |
| Yum China Holdings |
| FAT Brands |
Yum China and FAT Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yum China and FAT Brands
The main advantage of trading using opposite Yum China and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum China position performs unexpectedly, FAT 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 FAT Brands will offset losses from the drop in FAT Brands' long position.| Yum China vs. Darden Restaurants | Yum China vs. The Wendys Co | Yum China vs. Dominos Pizza Common | Yum China vs. Restaurant Brands International |
| FAT Brands vs. Papa Johns International | FAT Brands vs. Darden Restaurants | FAT Brands vs. Yum China Holdings |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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