Correlation Between Douglas Emmett and Shake Shack

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

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

Diversification Opportunities for Douglas Emmett and Shake Shack

0.43

Correlation Coefficient

Douglas Emmett  Shake Shack

Very weak diversification

The 3 months correlation between Douglas and Shake is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Douglas Emmett and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Douglas Emmett 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 Douglas Emmett 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 Douglas Emmett i.e., Douglas Emmett and Shake Shack go up and down completely randomly.

Pair Corralation between Douglas Emmett and Shake Shack

Considering the 90-day investment horizon Douglas Emmett is expected to under-perform the Shake Shack. In addition to that, Douglas Emmett is 1.15 times more volatile than Shake Shack. It trades about -0.1 of its total potential returns per unit of risk. Shake Shack is currently generating about -0.07 per unit of volatility. If you would invest  12,942  in Shake Shack on October 26, 2024 and sell it today you would lose (814.00) from holding Shake Shack or give up 6.29% of portfolio value over 90 days.

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

Douglas Emmett  vs.  Shake Shack

Douglas Emmett

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Douglas Emmett has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Douglas Emmett is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Shake Shack

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Shake Shack may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Douglas Emmett and Shake Shack

The main advantage of trading using opposite Douglas Emmett and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Douglas Emmett 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 Douglas Emmett 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.