Correlation Between Edgewell Personal and Shake Shack

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

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

Diversification Opportunities for Edgewell Personal and Shake Shack

0.36

Correlation Coefficient

Edgewell Personal  Shake Shack

Weak diversification

The 3 months correlation between Edgewell and Shake is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Edgewell Personal Care and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Edgewell Personal 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 Edgewell Personal Care 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 Edgewell Personal i.e., Edgewell Personal and Shake Shack go up and down completely randomly.

Pair Corralation between Edgewell Personal and Shake Shack

Considering the 90-day investment horizon Edgewell Personal Care is expected to under-perform the Shake Shack. But the stock apears to be less risky and, when comparing its historical volatility, Edgewell Personal Care is 1.49 times less risky than Shake Shack. The stock trades about -0.42 of its potential returns per unit of risk. The Shake Shack is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  13,234  in Shake Shack on October 4, 2024 and sell it today you would lose (254.00) from holding Shake Shack or give up 1.92% of portfolio value over 90 days.

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

Edgewell Personal Care  vs.  Shake Shack

Edgewell Personal Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Edgewell Personal Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Edgewell Personal is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Shake Shack

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 10 (%) 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 Edgewell Personal and Shake Shack

The main advantage of trading using opposite Edgewell Personal and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edgewell Personal 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 Edgewell Personal Care 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.