Correlation Between Yum China and Advance Auto

Can any of the company-specific risk be diversified away by investing in both Yum China and Advance Auto 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 Advance Auto 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 Advance Auto Parts, you can compare the effects of market volatilities on Yum China and Advance Auto 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 Advance Auto. Check out your portfolio center. Please also check ongoing floating volatility patterns of Yum China and Advance Auto.

Diversification Opportunities for Yum China and Advance Auto

-0.37

Correlation Coefficient

Yum China  Advance Auto

Very good diversification

The 3 months correlation between Yum and Advance is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Yum China Holdings and Advance Auto Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advance Auto Parts 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 Advance Auto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advance Auto Parts has no effect on the direction of Yum China i.e., Yum China and Advance Auto go up and down completely randomly.

Pair Corralation between Yum China and Advance Auto

Given the investment horizon of 90 days Yum China Holdings is expected to under-perform the Advance Auto. But the stock apears to be less risky and, when comparing its historical volatility, Yum China Holdings is 2.09 times less risky than Advance Auto. The stock trades about -0.07 of its potential returns per unit of risk. The Advance Auto Parts is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,745  in Advance Auto Parts on September 4, 2024 and sell it today you would earn a total of  515.00  from holding Advance Auto Parts or generate 13.75% return on investment over 90 days.

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

Yum China Holdings  vs.  Advance Auto Parts

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 inconsistent primary indicators, Yum China exhibited solid returns over the last few months and may actually be approaching a breakup point.

Advance Auto Parts

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Advance Auto Parts are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Advance Auto is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Yum China and Advance Auto

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

The idea behind Yum China Holdings and Advance Auto Parts 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.