Correlation Between Premium Catering and Shake Shack

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

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

Diversification Opportunities for Premium Catering and Shake Shack

-0.6

Correlation Coefficient

Premium Catering  Shake Shack

Excellent diversification

The 3 months correlation between Premium and Shake is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Premium Catering Limited and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Premium Catering 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 Premium Catering Limited 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 Premium Catering i.e., Premium Catering and Shake Shack go up and down completely randomly.

Pair Corralation between Premium Catering and Shake Shack

Allowing for the 90-day total investment horizon Premium Catering Limited is expected to under-perform the Shake Shack. In addition to that, Premium Catering is 4.19 times more volatile than Shake Shack. It trades about -0.09 of its total potential returns per unit of risk. Shake Shack is currently generating about 0.07 per unit of volatility. If you would invest  5,787  in Shake Shack on October 23, 2024 and sell it today you would earn a total of  6,120  from holding Shake Shack or generate 105.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	16.36%
Values	Daily Returns

Premium Catering Limited  vs.  Shake Shack

Premium Catering

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premium Catering Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Shake Shack

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Shake Shack may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Premium Catering and Shake Shack

The main advantage of trading using opposite Premium Catering and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Premium Catering 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 Premium Catering Limited 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.