Correlation Between ESSA Pharma and Yum China

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

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

Diversification Opportunities for ESSA Pharma and Yum China

0.25

Correlation Coefficient

ESSA Pharma  Yum China

Modest diversification

The 3 months correlation between ESSA and Yum is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding ESSA Pharma and Yum China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum China Holdings and ESSA Pharma 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 ESSA Pharma are associated (or correlated) with Yum China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum China Holdings has no effect on the direction of ESSA Pharma i.e., ESSA Pharma and Yum China go up and down completely randomly.

Pair Corralation between ESSA Pharma and Yum China

Given the investment horizon of 90 days ESSA Pharma is expected to under-perform the Yum China. In addition to that, ESSA Pharma is 2.06 times more volatile than Yum China Holdings. It trades about -0.44 of its total potential returns per unit of risk. Yum China Holdings is currently generating about -0.18 per unit of volatility. If you would invest  3,964  in Yum China Holdings on January 20, 2024 and sell it today you would lose (242.00) from holding Yum China Holdings or give up 6.1% of portfolio value over 90 days.

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

ESSA Pharma  vs.  Yum China Holdings

ESSA Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ESSA Pharma has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Yum China Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, Yum China may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with ESSA Pharma and Yum China

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

The idea behind ESSA Pharma and Yum China Holdings 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.