Correlation Between Nathans Famous and Shake Shack

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

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

Diversification Opportunities for Nathans Famous and Shake Shack

-0.64

Correlation Coefficient

Nathans Famous  Shake Shack

Excellent diversification

The 3 months correlation between Nathans and Shake is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Nathans Famous and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Nathans Famous 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 Nathans Famous 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 Nathans Famous i.e., Nathans Famous and Shake Shack go up and down completely randomly.

Pair Corralation between Nathans Famous and Shake Shack

Given the investment horizon of 90 days Nathans Famous is expected to generate 0.7 times more return on investment than Shake Shack. However, Nathans Famous is 1.43 times less risky than Shake Shack. It trades about 0.14 of its potential returns per unit of risk. Shake Shack is currently generating about -0.16 per unit of risk. If you would invest  7,899  in Nathans Famous on December 20, 2024 and sell it today you would earn a total of  1,650  from holding Nathans Famous or generate 20.89% return on investment over 90 days.

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

Nathans Famous  vs.  Shake Shack

Nathans Famous

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nathans Famous are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Nathans Famous demonstrated 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 Nathans Famous and Shake Shack

The main advantage of trading using opposite Nathans Famous and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nathans Famous 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 Nathans Famous 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.