Correlation Between PACCAR and Shake Shack
Can any of the company-specific risk be diversified away by investing in both PACCAR 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 PACCAR and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PACCAR Inc and Shake Shack, you can compare the effects of market volatilities on PACCAR 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 PACCAR with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of PACCAR and Shake Shack.
Diversification Opportunities for PACCAR and Shake Shack
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between PACCAR and Shake is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding PACCAR Inc and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and PACCAR 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 PACCAR Inc 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 PACCAR i.e., PACCAR and Shake Shack go up and down completely randomly.
Pair Corralation between PACCAR and Shake Shack
Given the investment horizon of 90 days PACCAR Inc is expected to generate 0.95 times more return on investment than Shake Shack. However, PACCAR Inc is 1.06 times less risky than Shake Shack. It trades about 0.24 of its potential returns per unit of risk. Shake Shack is currently generating about 0.17 per unit of risk. If you would invest 10,455 in PACCAR Inc on September 4, 2024 and sell it today you would earn a total of 1,169 from holding PACCAR Inc or generate 11.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
PACCAR Inc vs. Shake Shack
Performance |
| Timeline |
| PACCAR Inc |
| Shake Shack |
PACCAR and Shake Shack Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PACCAR and Shake Shack
The main advantage of trading using opposite PACCAR and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PACCAR 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 PACCAR Inc 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. Hyatt Hotels | Shake Shack vs. Smart Share Global | Shake Shack vs. Sweetgreen | Shake Shack vs. Wyndham Hotels Resorts |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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