Correlation Between Bank Of and Yum Brands

Can any of the company-specific risk be diversified away by investing in both Bank Of 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 Bank Of and Yum Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Bank of and Yum Brands, you can compare the effects of market volatilities on Bank Of 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 Bank Of with a short position of Yum Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank Of and Yum Brands.

Diversification Opportunities for Bank Of and Yum Brands

0.72

Correlation Coefficient

Bank Of  Yum Brands

Poor diversification

The 3 months correlation between Bank and Yum is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding The Bank of and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Bank Of 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 The Bank of 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 Bank Of i.e., Bank Of and Yum Brands go up and down completely randomly.

Pair Corralation between Bank Of and Yum Brands

Assuming the 90 days horizon The Bank of is expected to generate 1.12 times more return on investment than Yum Brands. However, Bank Of is 1.12 times more volatile than Yum Brands. It trades about 0.3 of its potential returns per unit of risk. Yum Brands is currently generating about 0.11 per unit of risk. If you would invest  6,006  in The Bank of on August 30, 2024 and sell it today you would earn a total of  1,716  from holding The Bank of or generate 28.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

The Bank of  vs.  Yum Brands

The Bank

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Bank of are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Bank Of reported solid returns over the last few months and may actually be approaching a breakup point.

Yum Brands

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Yum Brands may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Bank Of and Yum Brands

The main advantage of trading using opposite Bank Of and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Of 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.

The idea behind The Bank of and Yum Brands 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.