Correlation Between Shake Shack and Carbon Revolution

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

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

Diversification Opportunities for Shake Shack and Carbon Revolution

0.26

Correlation Coefficient

Shake Shack  Carbon Revolution

Modest diversification

The 3 months correlation between Shake and Carbon is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Carbon Revolution Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carbon Revolution Public 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 Carbon Revolution. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carbon Revolution Public has no effect on the direction of Shake Shack i.e., Shake Shack and Carbon Revolution go up and down completely randomly.

Pair Corralation between Shake Shack and Carbon Revolution

Given the investment horizon of 90 days Shake Shack is expected to under-perform the Carbon Revolution. But the stock apears to be less risky and, when comparing its historical volatility, Shake Shack is 4.1 times less risky than Carbon Revolution. The stock trades about -0.14 of its potential returns per unit of risk. The Carbon Revolution Public is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  6.01  in Carbon Revolution Public on December 25, 2024 and sell it today you would lose (2.01) from holding Carbon Revolution Public or give up 33.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Shake Shack  vs.  Carbon Revolution Public

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.

Carbon Revolution Public

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Carbon Revolution Public are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Carbon Revolution showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shake Shack and Carbon Revolution

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

The idea behind Shake Shack and Carbon Revolution Public 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.