Correlation Between ICC Holdings and Shake Shack

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

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

Diversification Opportunities for ICC Holdings and Shake Shack

0.67

Correlation Coefficient

ICC Holdings  Shake Shack

Poor diversification

The 3 months correlation between ICC and Shake is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding ICC Holdings and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and ICC Holdings 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 ICC Holdings 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 ICC Holdings i.e., ICC Holdings and Shake Shack go up and down completely randomly.

Pair Corralation between ICC Holdings and Shake Shack

Given the investment horizon of 90 days ICC Holdings is expected to generate 14.3 times less return on investment than Shake Shack. But when comparing it to its historical volatility, ICC Holdings is 4.34 times less risky than Shake Shack. It trades about 0.09 of its potential returns per unit of risk. Shake Shack is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  11,649  in Shake Shack on September 17, 2024 and sell it today you would earn a total of  1,510  from holding Shake Shack or generate 12.96% return on investment over 90 days.

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

ICC Holdings  vs.  Shake Shack

ICC Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ICC Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental indicators, ICC Holdings is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Shake Shack

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 14 (%) 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 ICC Holdings and Shake Shack

The main advantage of trading using opposite ICC Holdings and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ICC Holdings 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 ICC Holdings 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.