Correlation Between Shake Shack and RF Acquisition

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

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

Diversification Opportunities for Shake Shack and RF Acquisition

-0.29

Correlation Coefficient

Shake Shack  RF Acquisition

Very good diversification

The 3 months correlation between Shake and RFACR is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and RF Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RF Acquisition Corp 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 RF Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RF Acquisition Corp has no effect on the direction of Shake Shack i.e., Shake Shack and RF Acquisition go up and down completely randomly.

Pair Corralation between Shake Shack and RF Acquisition

Given the investment horizon of 90 days Shake Shack is expected to generate 336.28 times less return on investment than RF Acquisition. But when comparing it to its historical volatility, Shake Shack is 89.88 times less risky than RF Acquisition. It trades about 0.07 of its potential returns per unit of risk. RF Acquisition Corp is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  11.00  in RF Acquisition Corp on September 12, 2024 and sell it today you would earn a total of  4.00  from holding RF Acquisition Corp or generate 36.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	32.67%
Values	Daily Returns

Shake Shack  vs.  RF Acquisition Corp

Shake Shack

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.

RF Acquisition Corp

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days RF Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively unfluctuating fundamental indicators, RF Acquisition reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shake Shack and RF Acquisition

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

The idea behind Shake Shack and RF Acquisition Corp 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.