Correlation Between Shake Shack and Alumina

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

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

Diversification Opportunities for Shake Shack and Alumina

0.35

Correlation Coefficient

Shake Shack  Alumina

Weak diversification

The 3 months correlation between Shake and Alumina is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Alumina Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alumina Limited 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 Alumina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alumina Limited has no effect on the direction of Shake Shack i.e., Shake Shack and Alumina go up and down completely randomly.

Pair Corralation between Shake Shack and Alumina

If you would invest  13,316  in Shake Shack on October 7, 2024 and sell it today you would earn a total of  22.00  from holding Shake Shack or generate 0.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	2.44%
Values	Daily Returns

Shake Shack  vs.  Alumina Limited

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.

Alumina Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alumina Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Alumina is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Shake Shack and Alumina

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

The idea behind Shake Shack and Alumina Limited 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.