Correlation Between China Tontine and Shake Shack

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

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

Diversification Opportunities for China Tontine and Shake Shack

0.0

Correlation Coefficient

China Tontine  Shake Shack

Pay attention - limited upside

The 3 months correlation between China and Shake is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding China Tontine Wines and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and China Tontine 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 China Tontine Wines are associated (or correlated) with Shake Shack. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shake Shack has no effect on the direction of China Tontine i.e., China Tontine and Shake Shack go up and down completely randomly.

Pair Corralation between China Tontine and Shake Shack

Assuming the 90 days horizon China Tontine Wines is expected to generate 32.02 times more return on investment than Shake Shack. However, China Tontine is 32.02 times more volatile than Shake Shack. It trades about 0.09 of its potential returns per unit of risk. Shake Shack is currently generating about 0.09 per unit of risk. If you would invest  1.50  in China Tontine Wines on September 19, 2024 and sell it today you would earn a total of  5.60  from holding China Tontine Wines or generate 373.33% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.39%
Values	Daily Returns

China Tontine Wines  vs.  Shake Shack

China Tontine Wines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Tontine Wines has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Tontine is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Shake Shack

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Tontine and Shake Shack

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

The idea behind China Tontine Wines and Shake Shack 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.