Correlation Between Smart Share and Shake Shack

Can any of the company-specific risk be diversified away by investing in both Smart Share 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 Smart Share and Shake Shack 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 Shake Shack, you can compare the effects of market volatilities on Smart Share 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 Smart Share with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smart Share and Shake Shack.

Diversification Opportunities for Smart Share and Shake Shack

-0.56

Correlation Coefficient

Smart Share  Shake Shack

Excellent diversification

The 3 months correlation between Smart and Shake is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Smart Share Global and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack 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 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 Smart Share i.e., Smart Share and Shake Shack go up and down completely randomly.

Pair Corralation between Smart Share and Shake Shack

Allowing for the 90-day total investment horizon Smart Share Global is expected to generate 1.44 times more return on investment than Shake Shack. However, Smart Share is 1.44 times more volatile than Shake Shack. It trades about 0.16 of its potential returns per unit of risk. Shake Shack is currently generating about -0.14 per unit of risk. If you would invest  72.00  in Smart Share Global on December 26, 2024 and sell it today you would earn a total of  40.00  from holding Smart Share Global or generate 55.56% return on investment over 90 days.

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

Smart Share Global  vs.  Shake Shack

Smart Share Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smart Share Global are ranked lower than 12 (%) 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.

Shake Shack

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shake Shack has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Smart Share and Shake Shack

The main advantage of trading using opposite Smart Share and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smart Share 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 Smart Share Global 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 Anywhere module to track or share privately all of your investments from the convenience of any device.