Correlation Between Shake Shack and Wingstop

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

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

Diversification Opportunities for Shake Shack and Wingstop

0.78

Correlation Coefficient

Shake Shack  Wingstop

Poor diversification

The 3 months correlation between Shake and Wingstop is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Wingstop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wingstop 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 Wingstop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wingstop has no effect on the direction of Shake Shack i.e., Shake Shack and Wingstop go up and down completely randomly.

Pair Corralation between Shake Shack and Wingstop

Given the investment horizon of 90 days Shake Shack is expected to under-perform the Wingstop. In addition to that, Shake Shack is 1.12 times more volatile than Wingstop. It trades about -0.13 of its total potential returns per unit of risk. Wingstop is currently generating about -0.1 per unit of volatility. If you would invest  28,680  in Wingstop on December 29, 2024 and sell it today you would lose (5,751) from holding Wingstop or give up 20.05% of portfolio value over 90 days.

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

Shake Shack  vs.  Wingstop

Shake Shack

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shake Shack has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Wingstop

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wingstop has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Shake Shack and Wingstop

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

The idea behind Shake Shack and Wingstop 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.