Correlation Between Merit Medical and Shake Shack
Can any of the company-specific risk be diversified away by investing in both Merit Medical 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 Merit Medical and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Merit Medical Systems and Shake Shack, you can compare the effects of market volatilities on Merit Medical 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 Merit Medical with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Merit Medical and Shake Shack.
Diversification Opportunities for Merit Medical and Shake Shack
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Merit and Shake is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Merit Medical Systems and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Merit Medical 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 Merit Medical Systems 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 Merit Medical i.e., Merit Medical and Shake Shack go up and down completely randomly.
Pair Corralation between Merit Medical and Shake Shack
Given the investment horizon of 90 days Merit Medical is expected to generate 2.32 times less return on investment than Shake Shack. But when comparing it to its historical volatility, Merit Medical Systems is 1.67 times less risky than Shake Shack. It trades about 0.05 of its potential returns per unit of risk. Shake Shack is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 7,834 in Shake Shack on September 12, 2024 and sell it today you would earn a total of 5,494 from holding Shake Shack or generate 70.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Merit Medical Systems vs. Shake Shack
Performance |
| Timeline |
| Merit Medical Systems |
| Shake Shack |
Merit Medical and Shake Shack Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Merit Medical and Shake Shack
The main advantage of trading using opposite Merit Medical and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merit Medical 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.| Merit Medical vs. Teleflex Incorporated | Merit Medical vs. The Cooper Companies, | Merit Medical vs. West Pharmaceutical Services | Merit Medical vs. ICU Medical |
| Shake Shack vs. Noble Romans | Shake Shack vs. Good Times Restaurants | Shake Shack vs. Flanigans Enterprises | Shake Shack vs. FAT Brands |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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