Correlation Between Shake Shack and Academy Sports
Can any of the company-specific risk be diversified away by investing in both Shake Shack and Academy Sports 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 Shake Shack and Academy Sports into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and Academy Sports Outdoors, you can compare the effects of market volatilities on Shake Shack and Academy Sports 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 Shake Shack with a short position of Academy Sports. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and Academy Sports.
Diversification Opportunities for Shake Shack and Academy Sports
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Shake and Academy is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Academy Sports Outdoors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Academy Sports Outdoors and Shake Shack 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 Shake Shack are associated (or correlated) with Academy Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Academy Sports Outdoors has no effect on the direction of Shake Shack i.e., Shake Shack and Academy Sports go up and down completely randomly.
Pair Corralation between Shake Shack and Academy Sports
Given the investment horizon of 90 days Shake Shack is expected to generate 1.38 times more return on investment than Academy Sports. However, Shake Shack is 1.38 times more volatile than Academy Sports Outdoors. It trades about 0.12 of its potential returns per unit of risk. Academy Sports Outdoors is currently generating about -0.01 per unit of risk. If you would invest 6,172 in Shake Shack on September 2, 2024 and sell it today you would earn a total of 7,201 from holding Shake Shack or generate 116.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shake Shack vs. Academy Sports Outdoors
Performance |
| Timeline |
| Shake Shack |
| Academy Sports Outdoors |
Shake Shack and Academy Sports Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shake Shack and Academy Sports
The main advantage of trading using opposite Shake Shack and Academy Sports positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Academy Sports 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 Academy Sports will offset losses from the drop in Academy Sports' long position.The idea behind Shake Shack and Academy Sports Outdoors 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.| Academy Sports vs. Williams Sonoma | Academy Sports vs. AutoZone | Academy Sports vs. Ulta Beauty | Academy Sports vs. Best Buy Co |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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