Correlation Between Shake Shack and Summit Materials
Can any of the company-specific risk be diversified away by investing in both Shake Shack and Summit Materials 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 Summit Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and Summit Materials, you can compare the effects of market volatilities on Shake Shack and Summit Materials 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 Summit Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and Summit Materials.
Diversification Opportunities for Shake Shack and Summit Materials
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Shake and Summit is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Summit Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials 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 Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of Shake Shack i.e., Shake Shack and Summit Materials go up and down completely randomly.
Pair Corralation between Shake Shack and Summit Materials
Given the investment horizon of 90 days Shake Shack is expected to generate 1.36 times more return on investment than Summit Materials. However, Shake Shack is 1.36 times more volatile than Summit Materials. It trades about 0.09 of its potential returns per unit of risk. Summit Materials is currently generating about 0.06 per unit of risk. If you would invest 4,925 in Shake Shack on September 3, 2024 and sell it today you would earn a total of 8,448 from holding Shake Shack or generate 171.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Shake Shack vs. Summit Materials
Performance |
| Timeline |
| Shake Shack |
| Summit Materials |
Shake Shack and Summit Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shake Shack and Summit Materials
The main advantage of trading using opposite Shake Shack and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Summit Materials 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 Summit Materials will offset losses from the drop in Summit Materials' long position.| Shake Shack vs. Highway Holdings Limited | Shake Shack vs. QCR Holdings | Shake Shack vs. Partner Communications | Shake Shack vs. Acumen Pharmaceuticals |
| Summit Materials vs. Martin Marietta Materials | Summit Materials vs. Vulcan Materials | Summit Materials vs. United States Lime | Summit Materials vs. James Hardie Industries |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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