Correlation Between Shake Shack and GameStop Corp
Can any of the company-specific risk be diversified away by investing in both Shake Shack and GameStop Corp 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 GameStop Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and GameStop Corp, you can compare the effects of market volatilities on Shake Shack and GameStop Corp 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 GameStop Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and GameStop Corp.
Diversification Opportunities for Shake Shack and GameStop Corp
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Shake and GameStop is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and GameStop Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GameStop Corp 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 GameStop Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GameStop Corp has no effect on the direction of Shake Shack i.e., Shake Shack and GameStop Corp go up and down completely randomly.
Pair Corralation between Shake Shack and GameStop Corp
Given the investment horizon of 90 days Shake Shack is expected to generate 3.4 times less return on investment than GameStop Corp. But when comparing it to its historical volatility, Shake Shack is 1.49 times less risky than GameStop Corp. It trades about 0.16 of its potential returns per unit of risk. GameStop Corp is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 2,241 in GameStop Corp on September 2, 2024 and sell it today you would earn a total of 664.00 from holding GameStop Corp or generate 29.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shake Shack vs. GameStop Corp
Performance |
| Timeline |
| Shake Shack |
| GameStop Corp |
Shake Shack and GameStop Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shake Shack and GameStop Corp
The main advantage of trading using opposite Shake Shack and GameStop Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, GameStop Corp 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 GameStop Corp will offset losses from the drop in GameStop Corp's long position.The idea behind Shake Shack and GameStop Corp 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.| GameStop Corp vs. RH | GameStop Corp vs. Dicks Sporting Goods | GameStop Corp vs. Best Buy Co | GameStop Corp vs. AutoZone |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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