Correlation Between Shake Shack and Red Robin

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Can any of the company-specific risk be diversified away by investing in both Shake Shack and Red Robin 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 Red Robin into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and Red Robin Gourmet, you can compare the effects of market volatilities on Shake Shack and Red Robin 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 Red Robin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and Red Robin.

Diversification Opportunities for Shake Shack and Red Robin

0.65
  Correlation Coefficient

Poor diversification

The 3 months correlation between Shake and Red is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Red Robin Gourmet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Robin Gourmet 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 Red Robin. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Robin Gourmet has no effect on the direction of Shake Shack i.e., Shake Shack and Red Robin go up and down completely randomly.

Pair Corralation between Shake Shack and Red Robin

Given the investment horizon of 90 days Shake Shack is expected to generate 0.69 times more return on investment than Red Robin. However, Shake Shack is 1.44 times less risky than Red Robin. It trades about 0.08 of its potential returns per unit of risk. Red Robin Gourmet is currently generating about -0.04 per unit of risk. If you would invest  6,905  in Shake Shack on August 31, 2024 and sell it today you would earn a total of  6,468  from holding Shake Shack or generate 93.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.73%
ValuesDaily Returns

Shake Shack  vs.  Red Robin Gourmet

 Performance 
       Timeline  
Shake Shack 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite quite sluggish basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.
Red Robin Gourmet 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Red Robin Gourmet are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating technical and fundamental indicators, Red Robin sustained solid returns over the last few months and may actually be approaching a breakup point.

Shake Shack and Red Robin Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Shake Shack and Red Robin

The main advantage of trading using opposite Shake Shack and Red Robin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Red Robin 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 Red Robin will offset losses from the drop in Red Robin's long position.
The idea behind Shake Shack and Red Robin Gourmet 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.
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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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