Correlation Between Yum Brands and McDonalds Corp

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Can any of the company-specific risk be diversified away by investing in both Yum Brands and McDonalds Corp 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 Brands and McDonalds Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Yum Brands and McDonalds Corp, you can compare the effects of market volatilities on Yum Brands and McDonalds Corp 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 Brands with a short position of McDonalds Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum Brands and McDonalds Corp.

Diversification Opportunities for Yum Brands and McDonalds Corp

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Yum Brands and McDonalds is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Yum Brands and McDonalds Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on McDonalds Corp and Yum Brands 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 Brands are associated (or correlated) with McDonalds Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of McDonalds Corp has no effect on the direction of Yum Brands i.e., Yum Brands and McDonalds Corp go up and down completely randomly.

Pair Corralation between Yum Brands and McDonalds Corp

Considering the 90-day investment horizon Yum Brands is expected to generate 2.11 times less return on investment than McDonalds Corp. In addition to that, Yum Brands is 1.22 times more volatile than McDonalds Corp. It trades about 0.02 of its total potential returns per unit of risk. McDonalds Corp is currently generating about 0.05 per unit of volatility. If you would invest  20,087  in McDonalds Corp on June 28, 2022 and sell it today you would earn a total of  4,370  from holding McDonalds Corp or generate 21.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Yum Brands  vs.  McDonalds Corp

 Performance (%) 
       Timeline  
Yum Brands 
Yum Brands Performance
0 of 100
Over the last 90 days Yum Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Yum Brands is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Yum Brands Price Channel

McDonalds Corp 
McDonalds Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in McDonalds Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, McDonalds Corp is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

McDonalds Price Channel

Yum Brands and McDonalds Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Yum Brands and McDonalds Corp

The main advantage of trading using opposite Yum Brands and McDonalds Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yum Brands position performs unexpectedly, McDonalds Corp 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 McDonalds Corp will offset losses from the drop in McDonalds Corp's long position.
Yum Brands vs. Kibush Capital Corp
The idea behind Yum Brands and McDonalds Corp 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.
McDonalds Corp vs. Kibush Capital Corp
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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