Correlation Between Li Auto and Shake Shack

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

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

Diversification Opportunities for Li Auto and Shake Shack

-0.41

Correlation Coefficient

Li Auto  Shake Shack

Very good diversification

The 3 months correlation between Li Auto and Shake is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Li Auto and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Li Auto 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 Li Auto 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 Li Auto i.e., Li Auto and Shake Shack go up and down completely randomly.

Pair Corralation between Li Auto and Shake Shack

Allowing for the 90-day total investment horizon Li Auto is expected to generate 1.39 times more return on investment than Shake Shack. However, Li Auto is 1.39 times more volatile than Shake Shack. It trades about -0.15 of its potential returns per unit of risk. Shake Shack is currently generating about -0.26 per unit of risk. If you would invest  2,532  in Li Auto on October 26, 2024 and sell it today you would lose (211.00) from holding Li Auto or give up 8.33% of portfolio value over 90 days.

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

Li Auto  vs.  Shake Shack

Li Auto

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Li Auto has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Shake Shack

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Shake Shack is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Li Auto and Shake Shack

The main advantage of trading using opposite Li Auto and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Li Auto 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 Li Auto 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.