Correlation Between Good Times and Shake Shack
Can any of the company-specific risk be diversified away by investing in both Good Times 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 Good Times and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Good Times Restaurants and Shake Shack, you can compare the effects of market volatilities on Good Times 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 Good Times with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Good Times and Shake Shack.
Diversification Opportunities for Good Times and Shake Shack
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Good and Shake is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Good Times Restaurants and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Good Times 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 Good Times Restaurants 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 Good Times i.e., Good Times and Shake Shack go up and down completely randomly.
Pair Corralation between Good Times and Shake Shack
Given the investment horizon of 90 days Good Times Restaurants is expected to under-perform the Shake Shack. But the stock apears to be less risky and, when comparing its historical volatility, Good Times Restaurants is 2.04 times less risky than Shake Shack. The stock trades about -0.09 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 13,051 in Shake Shack on September 13, 2024 and sell it today you would earn a total of 564.00 from holding Shake Shack or generate 4.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Good Times Restaurants vs. Shake Shack
Performance |
| Timeline |
| Good Times Restaurants |
| Shake Shack |
Good Times and Shake Shack Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Good Times and Shake Shack
The main advantage of trading using opposite Good Times and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Good Times 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 Good Times Restaurants 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.| 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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