Correlation Between Shake Shack and BECTON

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

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

Diversification Opportunities for Shake Shack and BECTON

-0.75

Correlation Coefficient

Shake Shack  BECTON

Pay attention - limited upside

The 3 months correlation between Shake and BECTON is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and BECTON DICKINSON AND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BECTON DICKINSON AND 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 BECTON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BECTON DICKINSON AND has no effect on the direction of Shake Shack i.e., Shake Shack and BECTON go up and down completely randomly.

Pair Corralation between Shake Shack and BECTON

Given the investment horizon of 90 days Shake Shack is expected to generate 4.38 times more return on investment than BECTON. However, Shake Shack is 4.38 times more volatile than BECTON DICKINSON AND. It trades about 0.23 of its potential returns per unit of risk. BECTON DICKINSON AND is currently generating about -0.18 per unit of risk. If you would invest  10,205  in Shake Shack on September 13, 2024 and sell it today you would earn a total of  3,612  from holding Shake Shack or generate 35.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.83%
Values	Daily Returns

Shake Shack  vs.  BECTON DICKINSON AND

Shake Shack

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 18 (%) 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.

BECTON DICKINSON AND

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BECTON DICKINSON AND has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BECTON is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shake Shack and BECTON

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

The idea behind Shake Shack and BECTON DICKINSON AND 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.