Correlation Between Minerals Technologies and Shake Shack

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

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

Diversification Opportunities for Minerals Technologies and Shake Shack

0.44

Correlation Coefficient

Minerals Technologies  Shake Shack

Very weak diversification

The 3 months correlation between Minerals and Shake is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Minerals Technologies and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Minerals Technologies 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 Minerals Technologies 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 Minerals Technologies i.e., Minerals Technologies and Shake Shack go up and down completely randomly.

Pair Corralation between Minerals Technologies and Shake Shack

Considering the 90-day investment horizon Minerals Technologies is expected to under-perform the Shake Shack. But the stock apears to be less risky and, when comparing its historical volatility, Minerals Technologies is 1.67 times less risky than Shake Shack. The stock trades about -0.27 of its potential returns per unit of risk. The Shake Shack is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  13,764  in Shake Shack on October 6, 2024 and sell it today you would lose (426.00) from holding Shake Shack or give up 3.1% of portfolio value over 90 days.

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

Minerals Technologies  vs.  Shake Shack

Minerals Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Minerals Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Minerals Technologies is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Shake Shack

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 13 (%) 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 Minerals Technologies and Shake Shack

The main advantage of trading using opposite Minerals Technologies and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Minerals Technologies 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 Minerals Technologies 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.