Correlation Between Smart Share and Yum Brands

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

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

Diversification Opportunities for Smart Share and Yum Brands

0.47

Correlation Coefficient

Smart Share  Yum Brands

Very weak diversification

The 3 months correlation between Smart and Yum is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Smart Share Global and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Smart Share 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 Smart Share Global 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 Smart Share i.e., Smart Share and Yum Brands go up and down completely randomly.

Pair Corralation between Smart Share and Yum Brands

Allowing for the 90-day total investment horizon Smart Share Global is expected to generate 4.74 times more return on investment than Yum Brands. However, Smart Share is 4.74 times more volatile than Yum Brands. It trades about 0.05 of its potential returns per unit of risk. Yum Brands is currently generating about 0.05 per unit of risk. If you would invest  53.00  in Smart Share Global on September 4, 2024 and sell it today you would earn a total of  19.00  from holding Smart Share Global or generate 35.85% return on investment over 90 days.

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

Smart Share Global  vs.  Yum Brands

Smart Share Global

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Smart Share Global are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Smart Share displayed solid returns over the last few months and may actually be approaching a breakup point.

Yum Brands

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Yum Brands is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Smart Share and Yum Brands

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

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.