Correlation Between Stepstone and Shake Shack
Can any of the company-specific risk be diversified away by investing in both Stepstone and Shake Shack 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 Stepstone and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Stepstone Group and Shake Shack, you can compare the effects of market volatilities on Stepstone and Shake Shack 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 Stepstone with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepstone and Shake Shack.
Diversification Opportunities for Stepstone and Shake Shack
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Stepstone and Shake is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Stepstone 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 Stepstone Group are associated (or correlated) with Shake Shack. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shake Shack has no effect on the direction of Stepstone i.e., Stepstone and Shake Shack go up and down completely randomly.
Pair Corralation between Stepstone and Shake Shack
Given the investment horizon of 90 days Stepstone is expected to generate 1.17 times less return on investment than Shake Shack. But when comparing it to its historical volatility, Stepstone Group is 1.3 times less risky than Shake Shack. It trades about 0.09 of its potential returns per unit of risk. Shake Shack is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 4,975 in Shake Shack on September 2, 2024 and sell it today you would earn a total of 8,398 from holding Shake Shack or generate 168.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Stepstone Group vs. Shake Shack
Performance |
| Timeline |
| Stepstone Group |
| Shake Shack |
Stepstone and Shake Shack Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Stepstone and Shake Shack
The main advantage of trading using opposite Stepstone and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepstone position performs unexpectedly, Shake Shack 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 Shake Shack will offset losses from the drop in Shake Shack's long position.| Stepstone vs. Munivest Fund | Stepstone vs. Blackrock Muniyield Quality | Stepstone vs. Federated Investors B | Stepstone vs. Federated Premier Municipal |
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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