Correlation Between Dow Jones and Shake Shack
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Shake Shack, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Shake Shack.
Diversification Opportunities for Dow Jones and Shake Shack
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Shake is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Shake Shack go up and down completely randomly.
Pair Corralation between Dow Jones and Shake Shack
Assuming the 90 days trading horizon Dow Jones is expected to generate 1.8 times less return on investment than Shake Shack. But when comparing it to its historical volatility, Dow Jones Industrial is 2.72 times less risky than Shake Shack. It trades about 0.22 of its potential returns per unit of risk. Shake Shack is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 11,426 in Shake Shack on August 27, 2024 and sell it today you would earn a total of 875.00 from holding Shake Shack or generate 7.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Shake Shack
Performance |
| Timeline |
Dow Jones and Shake Shack Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Shake Shack
Pair trading matchups for Shake Shack
Pair Trading with Dow Jones and Shake Shack
The main advantage of trading using opposite Dow Jones and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
| Shake Shack vs. Dominos Pizza | Shake Shack vs. Papa Johns International | Shake Shack vs. Chipotle Mexican Grill | Shake Shack vs. Darden Restaurants |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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