Correlation Between Shake Shack and Sonos

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

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

Diversification Opportunities for Shake Shack and Sonos

0.89

Correlation Coefficient

Shake Shack  Sonos

Very poor diversification

The 3 months correlation between Shake and Sonos is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Sonos Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonos Inc 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 Sonos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonos Inc has no effect on the direction of Shake Shack i.e., Shake Shack and Sonos go up and down completely randomly.

Pair Corralation between Shake Shack and Sonos

Given the investment horizon of 90 days Shake Shack is expected to generate 1.62 times less return on investment than Sonos. But when comparing it to its historical volatility, Shake Shack is 1.17 times less risky than Sonos. It trades about 0.11 of its potential returns per unit of risk. Sonos Inc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,349  in Sonos Inc on September 23, 2024 and sell it today you would earn a total of  107.00  from holding Sonos Inc or generate 7.93% return on investment over 90 days.

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

Shake Shack  vs.  Sonos Inc

Shake Shack

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.

Sonos Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sonos Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Sonos displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shake Shack and Sonos

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

The idea behind Shake Shack and Sonos Inc 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.