Correlation Between Vita Coco and Shake Shack

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

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

Diversification Opportunities for Vita Coco and Shake Shack

0.89

Correlation Coefficient

Vita Coco  Shake Shack

Very poor diversification

The 3 months correlation between Vita and Shake is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vita Coco and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Vita Coco 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 Vita Coco 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 Vita Coco i.e., Vita Coco and Shake Shack go up and down completely randomly.

Pair Corralation between Vita Coco and Shake Shack

Given the investment horizon of 90 days Vita Coco is expected to generate 1.04 times more return on investment than Shake Shack. However, Vita Coco is 1.04 times more volatile than Shake Shack. It trades about 0.08 of its potential returns per unit of risk. Shake Shack is currently generating about 0.08 per unit of risk. If you would invest  1,349  in Vita Coco on October 11, 2024 and sell it today you would earn a total of  2,049  from holding Vita Coco or generate 151.89% return on investment over 90 days.

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

Vita Coco  vs.  Shake Shack

Vita Coco

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vita Coco are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal fundamental indicators, Vita Coco displayed solid returns over the last few months and may actually be approaching a breakup point.

Shake Shack

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vita Coco and Shake Shack

The main advantage of trading using opposite Vita Coco and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vita Coco 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 Vita Coco 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 CEOs Directory module to screen CEOs from public companies around the world.