Correlation Between Wingstop and Shake Shack

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

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

Diversification Opportunities for Wingstop and Shake Shack

0.37

Correlation Coefficient

Wingstop  Shake Shack

Weak diversification

The 3 months correlation between Wingstop and Shake is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Wingstop and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Wingstop 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 Wingstop 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 Wingstop i.e., Wingstop and Shake Shack go up and down completely randomly.

Pair Corralation between Wingstop and Shake Shack

Given the investment horizon of 90 days Wingstop is expected to under-perform the Shake Shack. But the stock apears to be less risky and, when comparing its historical volatility, Wingstop is 1.11 times less risky than Shake Shack. The stock trades about -0.2 of its potential returns per unit of risk. The Shake Shack is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  13,373  in Shake Shack on November 28, 2024 and sell it today you would lose (2,352) from holding Shake Shack or give up 17.59% of portfolio value over 90 days.

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

Wingstop  vs.  Shake Shack

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 March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Wingstop and Shake Shack

The main advantage of trading using opposite Wingstop and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wingstop 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 Wingstop 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.

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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 Valuation module to check real value of public entities based on technical and fundamental data.