Correlation Between Shake Shack and Stepan
Can any of the company-specific risk be diversified away by investing in both Shake Shack and Stepan 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 Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and Stepan Company, you can compare the effects of market volatilities on Shake Shack and Stepan 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 Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and Stepan.
Diversification Opportunities for Shake Shack and Stepan
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Shake and Stepan is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Shake Shack i.e., Shake Shack and Stepan go up and down completely randomly.
Pair Corralation between Shake Shack and Stepan
Given the investment horizon of 90 days Shake Shack is expected to generate 1.74 times more return on investment than Stepan. However, Shake Shack is 1.74 times more volatile than Stepan Company. It trades about 0.12 of its potential returns per unit of risk. Stepan Company is currently generating about -0.02 per unit of risk. If you would invest 6,172 in Shake Shack on September 2, 2024 and sell it today you would earn a total of 7,201 from holding Shake Shack or generate 116.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shake Shack vs. Stepan Company
Performance |
| Timeline |
| Shake Shack |
| Stepan Company |
Shake Shack and Stepan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shake Shack and Stepan
The main advantage of trading using opposite Shake Shack and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan's long position.The idea behind Shake Shack and Stepan Company 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.| Stepan vs. Linde plc Ordinary | Stepan vs. Air Products and | Stepan vs. Aquagold International | Stepan vs. Thrivent High Yield |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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