Correlation Between Dutch Bros and Shake Shack
Can any of the company-specific risk be diversified away by investing in both Dutch Bros 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 Dutch Bros and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dutch Bros and Shake Shack, you can compare the effects of market volatilities on Dutch Bros 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 Dutch Bros with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dutch Bros and Shake Shack.
Diversification Opportunities for Dutch Bros and Shake Shack
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dutch and Shake is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dutch Bros and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Dutch Bros 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 Dutch Bros 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 Dutch Bros i.e., Dutch Bros and Shake Shack go up and down completely randomly.
Pair Corralation between Dutch Bros and Shake Shack
Given the investment horizon of 90 days Dutch Bros is expected to generate 2.29 times more return on investment than Shake Shack. However, Dutch Bros is 2.29 times more volatile than Shake Shack. It trades about 0.3 of its potential returns per unit of risk. Shake Shack is currently generating about 0.24 per unit of risk. If you would invest 3,590 in Dutch Bros on August 29, 2024 and sell it today you would earn a total of 1,725 from holding Dutch Bros or generate 48.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dutch Bros vs. Shake Shack
Performance |
| Timeline |
| Dutch Bros |
| Shake Shack |
Dutch Bros and Shake Shack Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dutch Bros and Shake Shack
The main advantage of trading using opposite Dutch Bros and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dutch Bros 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.| Dutch Bros vs. Starbucks | Dutch Bros vs. CAVA Group, | Dutch Bros vs. Yum China Holdings | Dutch Bros vs. Wingstop |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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