Correlation Between Shake Shack and Nova Minerals

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

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

Diversification Opportunities for Shake Shack and Nova Minerals

0.47

Correlation Coefficient

Shake Shack  Nova Minerals

Very weak diversification

The 3 months correlation between Shake and Nova is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Nova Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nova Minerals Limited 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 Nova Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nova Minerals Limited has no effect on the direction of Shake Shack i.e., Shake Shack and Nova Minerals go up and down completely randomly.

Pair Corralation between Shake Shack and Nova Minerals

Given the investment horizon of 90 days Shake Shack is expected to under-perform the Nova Minerals. But the stock apears to be less risky and, when comparing its historical volatility, Shake Shack is 1.81 times less risky than Nova Minerals. The stock trades about -0.19 of its potential returns per unit of risk. The Nova Minerals Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,192  in Nova Minerals Limited on December 19, 2024 and sell it today you would lose (42.00) from holding Nova Minerals Limited or give up 3.52% of portfolio value over 90 days.

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

Shake Shack  vs.  Nova Minerals Limited

Shake Shack

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shake Shack has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Nova Minerals Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nova Minerals Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nova Minerals may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shake Shack and Nova Minerals

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

The idea behind Shake Shack and Nova Minerals Limited 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.