Correlation Between Shake Shack and Papa Johns

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

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

Diversification Opportunities for Shake Shack and Papa Johns

-0.51

Correlation Coefficient

Shake Shack  Papa Johns

Excellent diversification

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

Pair Corralation between Shake Shack and Papa Johns

Given the investment horizon of 90 days Shake Shack is expected to under-perform the Papa Johns. But the stock apears to be less risky and, when comparing its historical volatility, Shake Shack is 1.16 times less risky than Papa Johns. The stock trades about -0.13 of its potential returns per unit of risk. The Papa Johns International is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,961  in Papa Johns International on December 28, 2024 and sell it today you would earn a total of  141.00  from holding Papa Johns International or generate 3.56% 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.  Papa Johns International

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.

Papa Johns International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Papa Johns International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Papa Johns may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shake Shack and Papa Johns

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

The idea behind Shake Shack and Papa Johns International 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..