Correlation Between Yum China and Wendys

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Can any of the company-specific risk be diversified away by investing in both Yum China and Wendys 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 Wendys 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 The Wendys Co, you can compare the effects of market volatilities on Yum China and Wendys 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 Wendys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum China and Wendys.

Diversification Opportunities for Yum China and Wendys

0.28
  Correlation Coefficient

Modest diversification

The 3 months correlation between Yum and Wendys is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys 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 Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of Yum China i.e., Yum China and Wendys go up and down completely randomly.

Pair Corralation between Yum China and Wendys

Given the investment horizon of 90 days Yum China Holdings is expected to generate 1.46 times more return on investment than Wendys. However, Yum China is 1.46 times more volatile than The Wendys Co. It trades about -0.14 of its potential returns per unit of risk. The Wendys Co is currently generating about -0.36 per unit of risk. If you would invest  4,817  in Yum China Holdings on November 1, 2024 and sell it today you would lose (268.00) from holding Yum China Holdings or give up 5.56% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Yum China Holdings  vs.  The Wendys Co

 Performance 
       Timeline  
Yum China Holdings 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, Yum China is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.
The Wendys 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days The Wendys Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Yum China and Wendys Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Yum China and Wendys

The main advantage of trading using opposite Yum China and Wendys positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum China position performs unexpectedly, Wendys 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 Wendys will offset losses from the drop in Wendys' long position.
The idea behind Yum China Holdings and The Wendys Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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