Correlation Between Shake Shack and Nathans Famous

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

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

Diversification Opportunities for Shake Shack and Nathans Famous

0.09

Correlation Coefficient

Shake Shack  Nathans Famous

Significant diversification

The 3 months correlation between Shake and Nathans is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Nathans Famous in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nathans Famous 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 Nathans Famous. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nathans Famous has no effect on the direction of Shake Shack i.e., Shake Shack and Nathans Famous go up and down completely randomly.

Pair Corralation between Shake Shack and Nathans Famous

Given the investment horizon of 90 days Shake Shack is expected to under-perform the Nathans Famous. In addition to that, Shake Shack is 1.7 times more volatile than Nathans Famous. It trades about -0.22 of its total potential returns per unit of risk. Nathans Famous is currently generating about -0.12 per unit of volatility. If you would invest  8,013  in Nathans Famous on October 25, 2024 and sell it today you would lose (221.00) from holding Nathans Famous or give up 2.76% of portfolio value over 90 days.

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

Shake Shack  vs.  Nathans Famous

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 may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nathans Famous

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nathans Famous has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Nathans Famous is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Shake Shack and Nathans Famous

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

The idea behind Shake Shack and Nathans Famous 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.