Correlation Between Procter Gamble and Shake Shack

Can any of the company-specific risk be diversified away by investing in both Procter Gamble 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 Procter Gamble and Shake Shack into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Procter Gamble and Shake Shack, you can compare the effects of market volatilities on Procter Gamble 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 Procter Gamble with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of Procter Gamble and Shake Shack.

Diversification Opportunities for Procter Gamble and Shake Shack

-0.38

Correlation Coefficient

Procter Gamble  Shake Shack

Very good diversification

The 3 months correlation between Procter and Shake is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Procter Gamble and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Procter Gamble 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 Procter Gamble 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 Procter Gamble i.e., Procter Gamble and Shake Shack go up and down completely randomly.

Pair Corralation between Procter Gamble and Shake Shack

Allowing for the 90-day total investment horizon Procter Gamble is expected to generate 5.65 times less return on investment than Shake Shack. But when comparing it to its historical volatility, Procter Gamble is 2.28 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 0.21 of returns per unit of risk over similar time horizon. If you would invest  9,941  in Shake Shack on August 30, 2024 and sell it today you would earn a total of  3,294  from holding Shake Shack or generate 33.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Procter Gamble  vs.  Shake Shack

Procter Gamble

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Shake Shack

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Procter Gamble and Shake Shack

The main advantage of trading using opposite Procter Gamble and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Procter Gamble 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.

The idea behind Procter Gamble and Shake Shack 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.