Correlation Between Catalent and Shake Shack

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

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

Diversification Opportunities for Catalent and Shake Shack

0.37

Correlation Coefficient

Catalent  Shake Shack

Weak diversification

The 3 months correlation between Catalent and Shake is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Catalent and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Catalent 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 Catalent 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 Catalent i.e., Catalent and Shake Shack go up and down completely randomly.

Pair Corralation between Catalent and Shake Shack

Given the investment horizon of 90 days Catalent is expected to generate 1.4 times less return on investment than Shake Shack. But when comparing it to its historical volatility, Catalent is 3.18 times less risky than Shake Shack. It trades about 0.54 of its potential returns per unit of risk. Shake Shack is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  11,649  in Shake Shack on September 19, 2024 and sell it today you would earn a total of  1,270  from holding Shake Shack or generate 10.9% return on investment over 90 days.

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

Catalent  vs.  Shake Shack

Catalent

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Catalent are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Catalent is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 Catalent and Shake Shack

The main advantage of trading using opposite Catalent and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Catalent 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 Catalent 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.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.