Correlation Between Shake Shack and CarsalesCom

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

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

Diversification Opportunities for Shake Shack and CarsalesCom

0.28

Correlation Coefficient

Shake Shack  CarsalesCom

Modest diversification

The 3 months correlation between Shake and CarsalesCom is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and CarsalesCom Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom ADR 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 CarsalesCom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom ADR has no effect on the direction of Shake Shack i.e., Shake Shack and CarsalesCom go up and down completely randomly.

Pair Corralation between Shake Shack and CarsalesCom

Given the investment horizon of 90 days Shake Shack is expected to generate 0.5 times more return on investment than CarsalesCom. However, Shake Shack is 2.01 times less risky than CarsalesCom. It trades about 0.0 of its potential returns per unit of risk. CarsalesCom Ltd ADR is currently generating about -0.22 per unit of risk. If you would invest  13,328  in Shake Shack on October 11, 2024 and sell it today you would lose (47.00) from holding Shake Shack or give up 0.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Shake Shack  vs.  CarsalesCom Ltd ADR

Shake Shack

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.

CarsalesCom ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CarsalesCom Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, CarsalesCom is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shake Shack and CarsalesCom

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

The idea behind Shake Shack and CarsalesCom Ltd ADR 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.