Correlation Between Shake Shack and Alvotech

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

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

Diversification Opportunities for Shake Shack and Alvotech

-0.19

Correlation Coefficient

Shake Shack  Alvotech

Good diversification

The 3 months correlation between Shake and Alvotech is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Alvotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alvotech 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 Alvotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alvotech has no effect on the direction of Shake Shack i.e., Shake Shack and Alvotech go up and down completely randomly.

Pair Corralation between Shake Shack and Alvotech

Given the investment horizon of 90 days Shake Shack is expected to generate 1.5 times more return on investment than Alvotech. However, Shake Shack is 1.5 times more volatile than Alvotech. It trades about 0.12 of its potential returns per unit of risk. Alvotech is currently generating about 0.01 per unit of risk. If you would invest  8,922  in Shake Shack on September 24, 2024 and sell it today you would earn a total of  3,965  from holding Shake Shack or generate 44.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Shake Shack  vs.  Alvotech

Shake Shack

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 12 (%) 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.

Alvotech

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alvotech are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Alvotech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Shake Shack and Alvotech

The main advantage of trading using opposite Shake Shack and Alvotech positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Alvotech 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 Alvotech will offset losses from the drop in Alvotech's long position.

The idea behind Shake Shack and Alvotech 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.