Correlation Between Shake Shack and Park Hotels

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

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

Diversification Opportunities for Shake Shack and Park Hotels

0.94

Correlation Coefficient

Shake Shack  Park Hotels

Almost no diversification

The 3 months correlation between Shake and Park is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Park Hotels Resorts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Park Hotels Resorts 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 Park Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Park Hotels Resorts has no effect on the direction of Shake Shack i.e., Shake Shack and Park Hotels go up and down completely randomly.

Pair Corralation between Shake Shack and Park Hotels

Given the investment horizon of 90 days Shake Shack is expected to under-perform the Park Hotels. In addition to that, Shake Shack is 1.92 times more volatile than Park Hotels Resorts. It trades about -0.14 of its total potential returns per unit of risk. Park Hotels Resorts is currently generating about -0.21 per unit of volatility. If you would invest  1,439  in Park Hotels Resorts on December 26, 2024 and sell it today you would lose (312.00) from holding Park Hotels Resorts or give up 21.68% of portfolio value over 90 days.

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

Shake Shack  vs.  Park Hotels Resorts

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 weak 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.

Park Hotels Resorts

Risk-Adjusted Performance

Very Weak

Over the last 90 days Park Hotels Resorts 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 forward-looking signals 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.

Pair Trading with Shake Shack and Park Hotels

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

The idea behind Shake Shack and Park Hotels Resorts 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.