Correlation Between Shake Shack and Talon Energy

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

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

Diversification Opportunities for Shake Shack and Talon Energy

-0.61

Correlation Coefficient

Shake Shack  Talon Energy

Excellent diversification

The 3 months correlation between Shake and Talon is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Talon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talon Energy 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 Talon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talon Energy has no effect on the direction of Shake Shack i.e., Shake Shack and Talon Energy go up and down completely randomly.

Pair Corralation between Shake Shack and Talon Energy

If you would invest  8,657  in Shake Shack on September 29, 2024 and sell it today you would earn a total of  4,598  from holding Shake Shack or generate 53.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	0.79%
Values	Daily Returns

Shake Shack  vs.  Talon Energy

Shake Shack

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 14 (%) 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.

Talon Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Talon Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Talon Energy is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Shake Shack and Talon Energy

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

The idea behind Shake Shack and Talon Energy 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.