Correlation Between Shake Shack and FedNat Holding

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

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

Diversification Opportunities for Shake Shack and FedNat Holding

0.0

Correlation Coefficient

Shake Shack  FedNat Holding

Pay attention - limited upside

The 3 months correlation between Shake and FedNat is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and FedNat Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FedNat Holding 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 FedNat Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FedNat Holding has no effect on the direction of Shake Shack i.e., Shake Shack and FedNat Holding go up and down completely randomly.

Pair Corralation between Shake Shack and FedNat Holding

If you would invest  5,475  in Shake Shack on October 11, 2024 and sell it today you would earn a total of  7,806  from holding Shake Shack or generate 142.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Shake Shack  vs.  FedNat Holding

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 weak basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.

FedNat Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FedNat Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, FedNat Holding is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Shake Shack and FedNat Holding

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

The idea behind Shake Shack and FedNat Holding 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.