Correlation Between Shake Shack and Global E

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

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

Diversification Opportunities for Shake Shack and Global E

0.8

Correlation Coefficient

Shake Shack  Global E

Very poor diversification

The 3 months correlation between Shake and Global is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Global E Online in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global E Online 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 Global E. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global E Online has no effect on the direction of Shake Shack i.e., Shake Shack and Global E go up and down completely randomly.

Pair Corralation between Shake Shack and Global E

Given the investment horizon of 90 days Shake Shack is expected to generate 0.85 times more return on investment than Global E. However, Shake Shack is 1.18 times less risky than Global E. It trades about 0.09 of its potential returns per unit of risk. Global E Online is currently generating about 0.08 per unit of risk. If you would invest  4,160  in Shake Shack on September 19, 2024 and sell it today you would earn a total of  8,430  from holding Shake Shack or generate 202.64% return on investment over 90 days.

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

Shake Shack  vs.  Global E Online

Shake Shack

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 9 (%) 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.

Global E Online

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global E Online are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental drivers, Global E exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shake Shack and Global E

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

The idea behind Shake Shack and Global E Online 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.