Correlation Between Shake Shack and Mesa Air

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

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

Diversification Opportunities for Shake Shack and Mesa Air

-0.51

Correlation Coefficient

Shake Shack  Mesa Air

Excellent diversification

The 3 months correlation between Shake and Mesa is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Mesa Air Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Air Group 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 Mesa Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Air Group has no effect on the direction of Shake Shack i.e., Shake Shack and Mesa Air go up and down completely randomly.

Pair Corralation between Shake Shack and Mesa Air

Given the investment horizon of 90 days Shake Shack is expected to generate 1.95 times less return on investment than Mesa Air. But when comparing it to its historical volatility, Shake Shack is 1.89 times less risky than Mesa Air. It trades about 0.29 of its potential returns per unit of risk. Mesa Air Group is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  85.00  in Mesa Air Group on September 17, 2024 and sell it today you would earn a total of  22.00  from holding Mesa Air Group or generate 25.88% return on investment over 90 days.

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

Shake Shack  vs.  Mesa Air Group

Shake Shack

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 14 (%) 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.

Mesa Air Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Shake Shack and Mesa Air

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

The idea behind Shake Shack and Mesa Air Group 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.