Correlation Between Shake Shack and Old Republic
Can any of the company-specific risk be diversified away by investing in both Shake Shack and Old Republic 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 Old Republic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and Old Republic International, you can compare the effects of market volatilities on Shake Shack and Old Republic 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 Old Republic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and Old Republic.
Diversification Opportunities for Shake Shack and Old Republic
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Shake and Old is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Old Republic International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Republic Interna 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 Old Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Republic Interna has no effect on the direction of Shake Shack i.e., Shake Shack and Old Republic go up and down completely randomly.
Pair Corralation between Shake Shack and Old Republic
Given the investment horizon of 90 days Shake Shack is expected to generate 2.52 times more return on investment than Old Republic. However, Shake Shack is 2.52 times more volatile than Old Republic International. It trades about 0.08 of its potential returns per unit of risk. Old Republic International is currently generating about 0.12 per unit of risk. If you would invest 6,875 in Shake Shack on September 4, 2024 and sell it today you would earn a total of 6,474 from holding Shake Shack or generate 94.17% 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. Old Republic International
Performance |
| Timeline |
| Shake Shack |
| Old Republic Interna |
Shake Shack and Old Republic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shake Shack and Old Republic
The main advantage of trading using opposite Shake Shack and Old Republic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Old Republic 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 Old Republic will offset losses from the drop in Old Republic's long position.| Shake Shack vs. Hyatt Hotels | Shake Shack vs. Smart Share Global | Shake Shack vs. Sweetgreen | Shake Shack vs. Wyndham Hotels Resorts |
| Old Republic vs. Progressive Corp | Old Republic vs. Cincinnati Financial | Old Republic vs. W R Berkley | Old Republic vs. The Allstate |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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