Correlation Between Shake Shack and American Hotel

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Can any of the company-specific risk be diversified away by investing in both Shake Shack and American Hotel 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 Shake Shack and American Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and American Hotel Income, you can compare the effects of market volatilities on Shake Shack and American Hotel 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 Shake Shack with a short position of American Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and American Hotel.

Diversification Opportunities for Shake Shack and American Hotel

-0.16
  Correlation Coefficient

Good diversification

The 3 months correlation between Shake and American is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and American Hotel Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Hotel Income and Shake Shack 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 Shake Shack are associated (or correlated) with American Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Hotel Income has no effect on the direction of Shake Shack i.e., Shake Shack and American Hotel go up and down completely randomly.

Pair Corralation between Shake Shack and American Hotel

Given the investment horizon of 90 days Shake Shack is expected to generate 0.46 times more return on investment than American Hotel. However, Shake Shack is 2.17 times less risky than American Hotel. It trades about 0.24 of its potential returns per unit of risk. American Hotel Income is currently generating about 0.05 per unit of risk. If you would invest  9,613  in Shake Shack on September 5, 2024 and sell it today you would earn a total of  3,621  from holding Shake Shack or generate 37.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Shake Shack  vs.  American Hotel Income

 Performance 
       Timeline  
Shake Shack 

Risk-Adjusted Performance

19 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.
American Hotel Income 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in American Hotel Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, American Hotel reported solid returns over the last few months and may actually be approaching a breakup point.

Shake Shack and American Hotel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shake Shack and American Hotel

The main advantage of trading using opposite Shake Shack and American Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, American Hotel 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 American Hotel will offset losses from the drop in American Hotel's long position.
The idea behind Shake Shack and American Hotel Income 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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