Correlation Between Brinker International and Yum China

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

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

Diversification Opportunities for Brinker International and Yum China

0.52

Correlation Coefficient

Brinker International  Yum China

Very weak diversification

The 3 months correlation between Brinker and Yum is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Brinker International and Yum China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum China Holdings and Brinker International 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 Brinker International are associated (or correlated) with Yum China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum China Holdings has no effect on the direction of Brinker International i.e., Brinker International and Yum China go up and down completely randomly.

Pair Corralation between Brinker International and Yum China

Considering the 90-day investment horizon Brinker International is expected to generate 0.97 times more return on investment than Yum China. However, Brinker International is 1.03 times less risky than Yum China. It trades about 0.4 of its potential returns per unit of risk. Yum China Holdings is currently generating about 0.07 per unit of risk. If you would invest  7,559  in Brinker International on September 27, 2024 and sell it today you would earn a total of  6,152  from holding Brinker International or generate 81.39% return on investment over 90 days.

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

Brinker International  vs.  Yum China Holdings

Brinker International

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Brinker International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Yum China Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, Yum China may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brinker International and Yum China

The main advantage of trading using opposite Brinker International and Yum China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brinker International position performs unexpectedly, Yum China 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 China will offset losses from the drop in Yum China's long position.

The idea behind Brinker International and Yum China Holdings 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.