Correlation Between Shake Shack and Dine Brands

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

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

Diversification Opportunities for Shake Shack and Dine Brands

0.62

Correlation Coefficient

Shake Shack  Dine Brands

Poor diversification

The 3 months correlation between Shake and Dine is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Dine Brands Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dine Brands Global 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 Dine Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dine Brands Global has no effect on the direction of Shake Shack i.e., Shake Shack and Dine Brands go up and down completely randomly.

Pair Corralation between Shake Shack and Dine Brands

Given the investment horizon of 90 days Shake Shack is expected to generate 2.12 times more return on investment than Dine Brands. However, Shake Shack is 2.12 times more volatile than Dine Brands Global. It trades about -0.02 of its potential returns per unit of risk. Dine Brands Global is currently generating about -0.44 per unit of risk. If you would invest  11,853  in Shake Shack on November 28, 2024 and sell it today you would lose (554.00) from holding Shake Shack or give up 4.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Shake Shack  vs.  Dine Brands Global

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 March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Dine Brands Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dine Brands Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Shake Shack and Dine Brands

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

The idea behind Shake Shack and Dine Brands Global 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.