Correlation Between Shake Shack and Western Acquisition

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

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

Diversification Opportunities for Shake Shack and Western Acquisition

-0.28

Correlation Coefficient

Shake Shack  Western Acquisition

Very good diversification

The 3 months correlation between Shake and Western is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Western Acquisition Ventures in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Acquisition 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 Western Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Acquisition has no effect on the direction of Shake Shack i.e., Shake Shack and Western Acquisition go up and down completely randomly.

Pair Corralation between Shake Shack and Western Acquisition

Given the investment horizon of 90 days Shake Shack is expected to generate 1.88 times more return on investment than Western Acquisition. However, Shake Shack is 1.88 times more volatile than Western Acquisition Ventures. It trades about 0.13 of its potential returns per unit of risk. Western Acquisition Ventures is currently generating about -0.01 per unit of risk. If you would invest  8,670  in Shake Shack on October 4, 2024 and sell it today you would earn a total of  4,310  from holding Shake Shack or generate 49.71% return on investment over 90 days.

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

Shake Shack  vs.  Western Acquisition Ventures

Shake Shack

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 10 (%) 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.

Western Acquisition

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Acquisition Ventures has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Western Acquisition is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Shake Shack and Western Acquisition

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

The idea behind Shake Shack and Western Acquisition Ventures 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 Anywhere module to track or share privately all of your investments from the convenience of any device.