Correlation Between Wendys and Yum Brands

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

Diversification Opportunities for Wendys and Yum Brands

-0.1

Correlation Coefficient

Wendys  Yum Brands

Good diversification

The 3 months correlation between Wendys and Yum is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands and Wendys 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 Wendys Co 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 Wendys i.e., Wendys and Yum Brands go up and down completely randomly.

Pair Corralation between Wendys and Yum Brands

Considering the 90-day investment horizon The Wendys Co is expected to under-perform the Yum Brands. In addition to that, Wendys is 2.03 times more volatile than Yum Brands. It trades about -0.16 of its total potential returns per unit of risk. Yum Brands is currently generating about 0.07 per unit of volatility. If you would invest  13,304  in Yum Brands on August 26, 2024 and sell it today you would earn a total of  223.00  from holding Yum Brands or generate 1.68% return on investment over 90 days.

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

The Wendys Co  vs.  Yum Brands

The Wendys

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Wendys Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Wendys may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Yum Brands

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Yum Brands are ranked lower than 1 (%) 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 latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Wendys and Yum Brands

The main advantage of trading using opposite Wendys and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys 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 Wendys Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.