Correlation Between Shake Shack and NISOURCE

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

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

Diversification Opportunities for Shake Shack and NISOURCE

-0.53

Correlation Coefficient

Shake Shack  NISOURCE

Excellent diversification

The 3 months correlation between Shake and NISOURCE is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and NISOURCE FIN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NISOURCE FIN P 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 NISOURCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NISOURCE FIN P has no effect on the direction of Shake Shack i.e., Shake Shack and NISOURCE go up and down completely randomly.

Pair Corralation between Shake Shack and NISOURCE

Given the investment horizon of 90 days Shake Shack is expected to generate 42.11 times less return on investment than NISOURCE. But when comparing it to its historical volatility, Shake Shack is 39.68 times less risky than NISOURCE. It trades about 0.09 of its potential returns per unit of risk. NISOURCE FIN P is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  10,084  in NISOURCE FIN P on September 23, 2024 and sell it today you would lose (1,046) from holding NISOURCE FIN P or give up 10.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	64.79%
Values	Daily Returns

Shake Shack  vs.  NISOURCE FIN P

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.

NISOURCE FIN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NISOURCE FIN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for NISOURCE FIN P investors.

Pair Trading with Shake Shack and NISOURCE

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

The idea behind Shake Shack and NISOURCE FIN P 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.