Correlation Between NISOURCE and Shake Shack

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

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

Diversification Opportunities for NISOURCE and Shake Shack

-0.64

Correlation Coefficient

NISOURCE  Shake Shack

Excellent diversification

The 3 months correlation between NISOURCE and Shake is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding NISOURCE FIN P and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and NISOURCE 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 NISOURCE FIN P are associated (or correlated) with Shake Shack. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shake Shack has no effect on the direction of NISOURCE i.e., NISOURCE and Shake Shack go up and down completely randomly.

Pair Corralation between NISOURCE and Shake Shack

Assuming the 90 days trading horizon NISOURCE is expected to generate 16.81 times less return on investment than Shake Shack. But when comparing it to its historical volatility, NISOURCE FIN P is 3.63 times less risky than Shake Shack. It trades about 0.01 of its potential returns per unit of risk. Shake Shack is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  10,580  in Shake Shack on September 24, 2024 and sell it today you would earn a total of  2,307  from holding Shake Shack or generate 21.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	89.16%
Values	Daily Returns

NISOURCE FIN P  vs.  Shake Shack

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 somewhat strong basic indicators, NISOURCE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with NISOURCE and Shake Shack

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

The idea behind NISOURCE FIN P and Shake Shack 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.