Correlation Between Pearson PLC and Shake Shack
Can any of the company-specific risk be diversified away by investing in both Pearson PLC 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 Pearson PLC and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Pearson PLC ADR and Shake Shack, you can compare the effects of market volatilities on Pearson PLC 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 Pearson PLC with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pearson PLC and Shake Shack.
Diversification Opportunities for Pearson PLC and Shake Shack
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between Pearson and Shake is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Pearson PLC ADR and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Pearson PLC 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 Pearson PLC ADR 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 Pearson PLC i.e., Pearson PLC and Shake Shack go up and down completely randomly.
Pair Corralation between Pearson PLC and Shake Shack
Considering the 90-day investment horizon Pearson PLC ADR is expected to under-perform the Shake Shack. But the stock apears to be less risky and, when comparing its historical volatility, Pearson PLC ADR is 2.51 times less risky than Shake Shack. The stock trades about -0.07 of its potential returns per unit of risk. The Shake Shack is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 8,748 in Shake Shack on January 13, 2025 and sell it today you would lose (477.00) from holding Shake Shack or give up 5.45% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Pearson PLC ADR vs. Shake Shack
Performance |
| Timeline |
| Pearson PLC ADR |
| Shake Shack |
Pearson PLC and Shake Shack Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Pearson PLC and Shake Shack
The main advantage of trading using opposite Pearson PLC and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pearson PLC 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.| Pearson PLC vs. John Wiley Sons | Pearson PLC vs. New York Times | Pearson PLC vs. Lee Enterprises Incorporated | Pearson PLC vs. John Wiley Sons |
| Shake Shack vs. Dominos Pizza Common | 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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