Correlation Between Shake Shack and New Providence

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

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

Diversification Opportunities for Shake Shack and New Providence

0.45

Correlation Coefficient

Shake Shack  New Providence

Very weak diversification

The 3 months correlation between Shake and New is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and New Providence Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Providence Acqui 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 New Providence. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Providence Acqui has no effect on the direction of Shake Shack i.e., Shake Shack and New Providence go up and down completely randomly.

Pair Corralation between Shake Shack and New Providence

If you would invest  1,220  in New Providence Acquisition on October 6, 2024 and sell it today you would earn a total of  0.00  from holding New Providence Acquisition or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	5.0%
Values	Daily Returns

Shake Shack  vs.  New Providence Acquisition

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.

New Providence Acqui

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days New Providence Acquisition has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile fundamental drivers, New Providence may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Shake Shack and New Providence

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

The idea behind Shake Shack and New Providence Acquisition 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.