Correlation Between Smart Share and Restaurant Brands

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

By analyzing existing cross correlation between Smart Share Global and Restaurant Brands International, you can compare the effects of market volatilities on Smart Share and Restaurant Brands 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 Smart Share with a short position of Restaurant Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smart Share and Restaurant Brands.

Diversification Opportunities for Smart Share and Restaurant Brands

0.49

Correlation Coefficient

Smart Share  Restaurant Brands

Very weak diversification

The 3 months correlation between Smart and Restaurant is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Smart Share Global and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands and Smart Share 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 Smart Share Global are associated (or correlated) with Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of Smart Share i.e., Smart Share and Restaurant Brands go up and down completely randomly.

Pair Corralation between Smart Share and Restaurant Brands

Allowing for the 90-day total investment horizon Smart Share Global is expected to generate 2.19 times more return on investment than Restaurant Brands. However, Smart Share is 2.19 times more volatile than Restaurant Brands International. It trades about 0.04 of its potential returns per unit of risk. Restaurant Brands International is currently generating about 0.05 per unit of risk. If you would invest  71.00  in Smart Share Global on September 4, 2024 and sell it today you would earn a total of  1.00  from holding Smart Share Global or generate 1.41% return on investment over 90 days.

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

Smart Share Global  vs.  Restaurant Brands Internationa

Smart Share Global

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Smart Share Global are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Smart Share displayed solid returns over the last few months and may actually be approaching a breakup point.

Restaurant Brands

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Restaurant Brands International are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Restaurant Brands is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Smart Share and Restaurant Brands

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

The idea behind Smart Share Global and Restaurant Brands International 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.