Correlation Between Western Acquisition and Shake Shack

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

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

Diversification Opportunities for Western Acquisition and Shake Shack

-0.28

Correlation Coefficient

Western Acquisition  Shake Shack

Very good diversification

The 3 months correlation between Western and Shake is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Western Acquisition Ventures and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Western Acquisition 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 Western Acquisition Ventures 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 Western Acquisition i.e., Western Acquisition and Shake Shack go up and down completely randomly.

Pair Corralation between Western Acquisition and Shake Shack

Given the investment horizon of 90 days Western Acquisition is expected to generate 10.0 times less return on investment than Shake Shack. But when comparing it to its historical volatility, Western Acquisition Ventures is 1.81 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 0.07 of returns per unit of risk over similar time horizon. If you would invest  5,636  in Shake Shack on October 4, 2024 and sell it today you would earn a total of  7,344  from holding Shake Shack or generate 130.31% return on investment over 90 days.

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

Western Acquisition Ventures  vs.  Shake Shack

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.

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.

Pair Trading with Western Acquisition and Shake Shack

The main advantage of trading using opposite Western Acquisition and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Acquisition 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 Western Acquisition Ventures 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.