Correlation Between Yum China and El Pollo
Can any of the company-specific risk be diversified away by investing in both Yum China and El Pollo 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 El Pollo 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 El Pollo Loco, you can compare the effects of market volatilities on Yum China and El Pollo 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 El Pollo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum China and El Pollo.
Diversification Opportunities for Yum China and El Pollo
Very weak diversification
The 3 months correlation between Yum and LOCO is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and El Pollo Loco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Pollo Loco 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 El Pollo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Pollo Loco has no effect on the direction of Yum China i.e., Yum China and El Pollo go up and down completely randomly.
Pair Corralation between Yum China and El Pollo
Given the investment horizon of 90 days Yum China is expected to generate 3.77 times less return on investment than El Pollo. In addition to that, Yum China is 1.38 times more volatile than El Pollo Loco. It trades about 0.05 of its total potential returns per unit of risk. El Pollo Loco is currently generating about 0.27 per unit of volatility. If you would invest 1,128 in El Pollo Loco on November 7, 2024 and sell it today you would earn a total of 95.00 from holding El Pollo Loco or generate 8.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yum China Holdings vs. El Pollo Loco
Performance |
| Timeline |
| Yum China Holdings |
| El Pollo Loco |
Yum China and El Pollo Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yum China and El Pollo
The main advantage of trading using opposite Yum China and El Pollo positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum China position performs unexpectedly, El Pollo 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 El Pollo will offset losses from the drop in El Pollo's 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 |
| El Pollo vs. FAT Brands | El Pollo vs. Potbelly Co | El Pollo vs. BJs Restaurants | El Pollo vs. One Group Hospitality |
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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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