Correlation Between Albemarle and Shake Shack
Can any of the company-specific risk be diversified away by investing in both Albemarle 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 Albemarle and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Albemarle and Shake Shack, you can compare the effects of market volatilities on Albemarle 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 Albemarle with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Albemarle and Shake Shack.
Diversification Opportunities for Albemarle and Shake Shack
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Albemarle and Shake is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Albemarle and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Albemarle 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 Albemarle 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 Albemarle i.e., Albemarle and Shake Shack go up and down completely randomly.
Pair Corralation between Albemarle and Shake Shack
Assuming the 90 days trading horizon Albemarle is expected to generate 11.81 times less return on investment than Shake Shack. But when comparing it to its historical volatility, Albemarle is 1.01 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 0.08 of returns per unit of risk over similar time horizon. If you would invest 6,692 in Shake Shack on August 30, 2024 and sell it today you would earn a total of 6,543 from holding Shake Shack or generate 97.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 47.21% |
| Values | Daily Returns |
Albemarle vs. Shake Shack
Performance |
| Timeline |
| Albemarle |
| Shake Shack |
Albemarle and Shake Shack Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Albemarle and Shake Shack
The main advantage of trading using opposite Albemarle and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Albemarle 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.| Albemarle vs. Chemours Co | Albemarle vs. Dupont De Nemours | Albemarle vs. FutureFuel Corp | Albemarle vs. Danimer Scientific |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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