Correlation Between Shake Shack and United Airlines
Can any of the company-specific risk be diversified away by investing in both Shake Shack and United Airlines 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 United Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Shake Shack and United Airlines Holdings, you can compare the effects of market volatilities on Shake Shack and United Airlines 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 United Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shake Shack and United Airlines.
Diversification Opportunities for Shake Shack and United Airlines
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Shake and United is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Shake Shack i.e., Shake Shack and United Airlines go up and down completely randomly.
Pair Corralation between Shake Shack and United Airlines
Given the investment horizon of 90 days Shake Shack is expected to generate 2.2 times less return on investment than United Airlines. But when comparing it to its historical volatility, Shake Shack is 1.13 times less risky than United Airlines. It trades about 0.2 of its potential returns per unit of risk. United Airlines Holdings is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest 7,826 in United Airlines Holdings on September 1, 2024 and sell it today you would earn a total of 1,857 from holding United Airlines Holdings or generate 23.73% 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. United Airlines Holdings
Performance |
| Timeline |
| Shake Shack |
| United Airlines Holdings |
Shake Shack and United Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Shake Shack and United Airlines
The main advantage of trading using opposite Shake Shack and United Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, United Airlines 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 United Airlines will offset losses from the drop in United Airlines' long position.| Shake Shack vs. Dominos Pizza | Shake Shack vs. Papa Johns International | Shake Shack vs. Chipotle Mexican Grill | Shake Shack vs. Darden Restaurants |
| United Airlines vs. American Airlines Group | United Airlines vs. Southwest Airlines | United Airlines vs. JetBlue Airways Corp | United Airlines vs. Delta Air Lines |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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