Correlation Between Shake Shack and Boot Barn
Can any of the company-specific risk be diversified away by investing in both Shake Shack and Boot Barn 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 Boot Barn into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and Boot Barn Holdings, you can compare the effects of market volatilities on Shake Shack and Boot Barn 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 Boot Barn. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and Boot Barn.
Diversification Opportunities for Shake Shack and Boot Barn
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Shake and Boot is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Boot Barn Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boot Barn Holdings 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 Boot Barn. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boot Barn Holdings has no effect on the direction of Shake Shack i.e., Shake Shack and Boot Barn go up and down completely randomly.
Pair Corralation between Shake Shack and Boot Barn
Given the investment horizon of 90 days Shake Shack is expected to generate 2.43 times less return on investment than Boot Barn. But when comparing it to its historical volatility, Shake Shack is 1.12 times less risky than Boot Barn. It trades about 0.07 of its potential returns per unit of risk. Boot Barn Holdings is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 13,463 in Boot Barn Holdings on September 13, 2024 and sell it today you would earn a total of 1,216 from holding Boot Barn Holdings or generate 9.03% 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. Boot Barn Holdings
Performance |
| Timeline |
| Shake Shack |
| Boot Barn Holdings |
Shake Shack and Boot Barn Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shake Shack and Boot Barn
The main advantage of trading using opposite Shake Shack and Boot Barn positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Boot Barn 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 Boot Barn will offset losses from the drop in Boot Barn's long position.The idea behind Shake Shack and Boot Barn Holdings 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.| Boot Barn vs. Ross Stores | Boot Barn vs. Childrens Place | Boot Barn vs. Buckle Inc | Boot Barn vs. Guess Inc |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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