Correlation Between Shake Shack and Drilling Tools
Can any of the company-specific risk be diversified away by investing in both Shake Shack and Drilling Tools 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 Drilling Tools into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and Drilling Tools International, you can compare the effects of market volatilities on Shake Shack and Drilling Tools 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 Drilling Tools. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and Drilling Tools.
Diversification Opportunities for Shake Shack and Drilling Tools
-0.63 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Shake and Drilling is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Drilling Tools International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Drilling Tools Inter 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 Drilling Tools. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Drilling Tools Inter has no effect on the direction of Shake Shack i.e., Shake Shack and Drilling Tools go up and down completely randomly.
Pair Corralation between Shake Shack and Drilling Tools
Given the investment horizon of 90 days Shake Shack is expected to generate 1.14 times less return on investment than Drilling Tools. But when comparing it to its historical volatility, Shake Shack is 1.0 times less risky than Drilling Tools. It trades about 0.17 of its potential returns per unit of risk. Drilling Tools International is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 322.00 in Drilling Tools International on September 4, 2024 and sell it today you would earn a total of 30.00 from holding Drilling Tools International or generate 9.32% 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. Drilling Tools International
Performance |
| Timeline |
| Shake Shack |
| Drilling Tools Inter |
Shake Shack and Drilling Tools Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shake Shack and Drilling Tools
The main advantage of trading using opposite Shake Shack and Drilling Tools positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Drilling Tools 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 Drilling Tools will offset losses from the drop in Drilling Tools' long position.| Shake Shack vs. Hyatt Hotels | Shake Shack vs. Smart Share Global | Shake Shack vs. Sweetgreen | Shake Shack vs. Wyndham Hotels Resorts |
| Drilling Tools vs. Ryman Hospitality Properties | Drilling Tools vs. Dominos Pizza | Drilling Tools vs. Turning Point Brands | Drilling Tools vs. Vita Coco |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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