Correlation Between Shake Shack and Reservoir Media

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

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

Diversification Opportunities for Shake Shack and Reservoir Media

0.54

Correlation Coefficient

Shake Shack  Reservoir Media

Very weak diversification

The 3 months correlation between Shake and Reservoir is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Reservoir Media in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reservoir Media 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 Reservoir Media. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reservoir Media has no effect on the direction of Shake Shack i.e., Shake Shack and Reservoir Media go up and down completely randomly.

Pair Corralation between Shake Shack and Reservoir Media

Given the investment horizon of 90 days Shake Shack is expected to generate 0.91 times more return on investment than Reservoir Media. However, Shake Shack is 1.1 times less risky than Reservoir Media. It trades about 0.05 of its potential returns per unit of risk. Reservoir Media is currently generating about 0.04 per unit of risk. If you would invest  10,661  in Shake Shack on October 20, 2024 and sell it today you would earn a total of  880.00  from holding Shake Shack or generate 8.25% return on investment over 90 days.

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

Shake Shack  vs.  Reservoir Media

Shake Shack

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Shake Shack may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Reservoir Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reservoir Media has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest inconsistent performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Shake Shack and Reservoir Media

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

The idea behind Shake Shack and Reservoir Media 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.