Correlation Between Restaurant Brands and Shake Shack

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

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

Diversification Opportunities for Restaurant Brands and Shake Shack

-0.39

Correlation Coefficient

Restaurant Brands  Shake Shack

Very good diversification

The 3 months correlation between Restaurant and Shake is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Restaurant Brands Internationa and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Restaurant Brands 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 Restaurant Brands International 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 Restaurant Brands i.e., Restaurant Brands and Shake Shack go up and down completely randomly.

Pair Corralation between Restaurant Brands and Shake Shack

Considering the 90-day investment horizon Restaurant Brands International is expected to generate 0.39 times more return on investment than Shake Shack. However, Restaurant Brands International is 2.58 times less risky than Shake Shack. It trades about 0.01 of its potential returns per unit of risk. Shake Shack is currently generating about -0.16 per unit of risk. If you would invest  6,620  in Restaurant Brands International on December 21, 2024 and sell it today you would earn a total of  33.00  from holding Restaurant Brands International or generate 0.5% return on investment over 90 days.

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

Restaurant Brands Internationa  vs.  Shake Shack

Restaurant Brands

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Restaurant Brands International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Restaurant Brands is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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 Restaurant Brands and Shake Shack

The main advantage of trading using opposite Restaurant Brands and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Restaurant Brands 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 Restaurant Brands International 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.