Correlation Between Shake Shack and Yum China

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

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

Diversification Opportunities for Shake Shack and Yum China

-0.66

Correlation Coefficient

Shake Shack  Yum China

Excellent diversification

The 3 months correlation between Shake and Yum is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Yum China Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum China Holdings 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 Yum China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum China Holdings has no effect on the direction of Shake Shack i.e., Shake Shack and Yum China go up and down completely randomly.

Pair Corralation between Shake Shack and Yum China

Given the investment horizon of 90 days Shake Shack is expected to under-perform the Yum China. In addition to that, Shake Shack is 1.54 times more volatile than Yum China Holdings. It trades about -0.13 of its total potential returns per unit of risk. Yum China Holdings is currently generating about 0.09 per unit of volatility. If you would invest  4,799  in Yum China Holdings on December 28, 2024 and sell it today you would earn a total of  518.00  from holding Yum China Holdings or generate 10.79% return on investment over 90 days.

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

Shake Shack  vs.  Yum China Holdings

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.

Yum China Holdings

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Yum China Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent primary indicators, Yum China may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Shake Shack and Yum China

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

The idea behind Shake Shack and Yum China Holdings 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..