Correlation Between Shake Shack and Rave Restaurant
Can any of the company-specific risk be diversified away by investing in both Shake Shack and Rave Restaurant 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 Rave Restaurant into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and Rave Restaurant Group, you can compare the effects of market volatilities on Shake Shack and Rave Restaurant 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 Rave Restaurant. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and Rave Restaurant.
Diversification Opportunities for Shake Shack and Rave Restaurant
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Shake and Rave is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group 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 Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Shake Shack i.e., Shake Shack and Rave Restaurant go up and down completely randomly.
Pair Corralation between Shake Shack and Rave Restaurant
Given the investment horizon of 90 days Shake Shack is expected to under-perform the Rave Restaurant. But the stock apears to be less risky and, when comparing its historical volatility, Shake Shack is 1.12 times less risky than Rave Restaurant. The stock trades about -0.32 of its potential returns per unit of risk. The Rave Restaurant Group is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 268.00 in Rave Restaurant Group on October 20, 2024 and sell it today you would lose (6.00) from holding Rave Restaurant Group or give up 2.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shake Shack vs. Rave Restaurant Group
Performance |
| Timeline |
| Shake Shack |
| Rave Restaurant Group |
Shake Shack and Rave Restaurant Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shake Shack and Rave Restaurant
The main advantage of trading using opposite Shake Shack and Rave Restaurant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Rave Restaurant 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 Rave Restaurant will offset losses from the drop in Rave Restaurant's long position.| Shake Shack vs. Dominos Pizza Common | Shake Shack vs. Papa Johns International | Shake Shack vs. Chipotle Mexican Grill | Shake Shack vs. Darden Restaurants |
| Rave Restaurant vs. Ark Restaurants Corp | Rave Restaurant vs. One Group Hospitality | Rave Restaurant vs. Flanigans Enterprises | Rave Restaurant vs. Noble Romans |
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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.
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