Correlation Between Shake Shack and USA Recycling

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

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

Diversification Opportunities for Shake Shack and USA Recycling

-0.55

Correlation Coefficient

Shake Shack  USA Recycling

Excellent diversification

The 3 months correlation between Shake and USA is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and USA Recycling Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USA Recycling Industries 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 USA Recycling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USA Recycling Industries has no effect on the direction of Shake Shack i.e., Shake Shack and USA Recycling go up and down completely randomly.

Pair Corralation between Shake Shack and USA Recycling

Given the investment horizon of 90 days Shake Shack is expected to generate 0.2 times more return on investment than USA Recycling. However, Shake Shack is 5.06 times less risky than USA Recycling. It trades about 0.16 of its potential returns per unit of risk. USA Recycling Industries is currently generating about -0.12 per unit of risk. If you would invest  10,613  in Shake Shack on September 26, 2024 and sell it today you would earn a total of  2,590  from holding Shake Shack or generate 24.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Shake Shack  vs.  USA Recycling Industries

Shake Shack

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 12 (%) 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.

USA Recycling Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days USA Recycling Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Shake Shack and USA Recycling

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

The idea behind Shake Shack and USA Recycling Industries 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.