Correlation Between Shake Shack and Harley Davidson

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

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

Diversification Opportunities for Shake Shack and Harley Davidson

-0.26

Correlation Coefficient

Shake Shack  Harley Davidson

Very good diversification

The 3 months correlation between Shake and Harley is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Harley Davidson in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Harley Davidson 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 Harley Davidson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Harley Davidson has no effect on the direction of Shake Shack i.e., Shake Shack and Harley Davidson go up and down completely randomly.

Pair Corralation between Shake Shack and Harley Davidson

Given the investment horizon of 90 days Shake Shack is expected to generate 1.29 times more return on investment than Harley Davidson. However, Shake Shack is 1.29 times more volatile than Harley Davidson. It trades about 0.07 of its potential returns per unit of risk. Harley Davidson is currently generating about -0.02 per unit of risk. If you would invest  7,870  in Shake Shack on October 24, 2024 and sell it today you would earn a total of  4,244  from holding Shake Shack or generate 53.93% return on investment over 90 days.

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

Shake Shack  vs.  Harley Davidson

Shake Shack

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 6 (%) 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.

Harley Davidson

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Harley Davidson has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Shake Shack and Harley Davidson

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

The idea behind Shake Shack and Harley Davidson 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.