Correlation Between Shake Shack and Restaurant Brands

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

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

Diversification Opportunities for Shake Shack and Restaurant Brands

-0.39

Correlation Coefficient

Shake Shack  Restaurant Brands

Very good diversification

The 3 months correlation between Shake and Restaurant is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands 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 Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of Shake Shack i.e., Shake Shack and Restaurant Brands go up and down completely randomly.

Pair Corralation between Shake Shack and Restaurant Brands

Given the investment horizon of 90 days Shake Shack is expected to under-perform the Restaurant Brands. In addition to that, Shake Shack is 2.58 times more volatile than Restaurant Brands International. It trades about -0.16 of its total potential returns per unit of risk. Restaurant Brands International is currently generating about 0.01 per unit of volatility. If you would invest  6,620  in Restaurant Brands International on December 21, 2024 and sell it today you would earn a total of  33.00  from holding Restaurant Brands International or generate 0.5% return on investment over 90 days.

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

Shake Shack  vs.  Restaurant Brands Internationa

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.

Restaurant Brands

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Restaurant Brands International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Restaurant Brands is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Shake Shack and Restaurant Brands

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

The idea behind Shake Shack and Restaurant Brands 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.