Correlation Between Yum China and Texas Roadhouse
Can any of the company-specific risk be diversified away by investing in both Yum China and Texas Roadhouse 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 Texas Roadhouse 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 Texas Roadhouse, you can compare the effects of market volatilities on Yum China and Texas Roadhouse 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 Texas Roadhouse. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum China and Texas Roadhouse.
Diversification Opportunities for Yum China and Texas Roadhouse
0.79 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Yum and Texas is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse 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 Texas Roadhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Roadhouse has no effect on the direction of Yum China i.e., Yum China and Texas Roadhouse go up and down completely randomly.
Pair Corralation between Yum China and Texas Roadhouse
Given the investment horizon of 90 days Yum China is expected to generate 2.67 times less return on investment than Texas Roadhouse. In addition to that, Yum China is 1.62 times more volatile than Texas Roadhouse. It trades about 0.03 of its total potential returns per unit of risk. Texas Roadhouse is currently generating about 0.14 per unit of volatility. If you would invest 12,085 in Texas Roadhouse on August 25, 2024 and sell it today you would earn a total of 7,405 from holding Texas Roadhouse or generate 61.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Yum China Holdings vs. Texas Roadhouse
Performance |
| Timeline |
| Yum China Holdings |
| Texas Roadhouse |
Yum China and Texas Roadhouse Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Yum China and Texas Roadhouse
The main advantage of trading using opposite Yum China and Texas Roadhouse positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum China position performs unexpectedly, Texas Roadhouse 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 Texas Roadhouse will offset losses from the drop in Texas Roadhouse's long position.| Yum China vs. Darden Restaurants | Yum China vs. The Wendys Co | Yum China vs. Dominos Pizza | Yum China vs. Restaurant Brands International |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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