Correlation Between Shake Shack and Catalent

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

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

Diversification Opportunities for Shake Shack and Catalent

0.37

Correlation Coefficient

Shake Shack  Catalent

Weak diversification

The 3 months correlation between Shake and Catalent is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Catalent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Catalent 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 Catalent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Catalent has no effect on the direction of Shake Shack i.e., Shake Shack and Catalent go up and down completely randomly.

Pair Corralation between Shake Shack and Catalent

Given the investment horizon of 90 days Shake Shack is expected to generate 3.18 times more return on investment than Catalent. However, Shake Shack is 3.18 times more volatile than Catalent. It trades about 0.24 of its potential returns per unit of risk. Catalent is currently generating about 0.54 per unit of risk. If you would invest  11,649  in Shake Shack on September 19, 2024 and sell it today you would earn a total of  1,270  from holding Shake Shack or generate 10.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Shake Shack  vs.  Catalent

Shake Shack

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 11 (%) 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.

Catalent

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Catalent are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Catalent is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Shake Shack and Catalent

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

The idea behind Shake Shack and Catalent 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.