Correlation Between Microsoft and Shake Shack
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Shake Shack, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Shake Shack.
Diversification Opportunities for Microsoft and Shake Shack
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Microsoft and Shake is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Shake Shack go up and down completely randomly.
Pair Corralation between Microsoft and Shake Shack
Given the investment horizon of 90 days Microsoft is expected to under-perform the Shake Shack. But the stock apears to be less risky and, when comparing its historical volatility, Microsoft is 1.55 times less risky than Shake Shack. The stock trades about -0.05 of its potential returns per unit of risk. The 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 | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Microsoft vs. Shake Shack
Performance |
| Timeline |
| Microsoft |
| Shake Shack |
Microsoft and Shake Shack Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Shake Shack
The main advantage of trading using opposite Microsoft and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. GigaCloud Technology Class | Microsoft vs. Arqit Quantum | Microsoft vs. Cemtrex | Microsoft vs. Rapid7 Inc |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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