Correlation Between Yum China and BT Brands

Can any of the company-specific risk be diversified away by investing in both Yum China and BT 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 Yum China and BT Brands 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 BT Brands Warrant, you can compare the effects of market volatilities on Yum China and BT 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 Yum China with a short position of BT Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum China and BT Brands.

Diversification Opportunities for Yum China and BT Brands

-0.58

Correlation Coefficient

Yum China  BT Brands

Excellent diversification

The 3 months correlation between Yum and BTBDW is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and BT Brands Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BT Brands Warrant 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 BT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BT Brands Warrant has no effect on the direction of Yum China i.e., Yum China and BT Brands go up and down completely randomly.

Pair Corralation between Yum China and BT Brands

Given the investment horizon of 90 days Yum China Holdings is expected to under-perform the BT Brands. But the stock apears to be less risky and, when comparing its historical volatility, Yum China Holdings is 62.47 times less risky than BT Brands. The stock trades about 0.0 of its potential returns per unit of risk. The BT Brands Warrant is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  22.00  in BT Brands Warrant on August 31, 2024 and sell it today you would lose (12.61) from holding BT Brands Warrant or give up 57.32% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	52.32%
Values	Daily Returns

Yum China Holdings  vs.  BT Brands Warrant

Yum China Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Yum China exhibited solid returns over the last few months and may actually be approaching a breakup point.

BT Brands Warrant

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days BT Brands Warrant has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly fragile fundamental indicators, BT Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Yum China and BT Brands

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

The idea behind Yum China Holdings and BT Brands Warrant 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.