Correlation Between Dave Busters and Shake Shack

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

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

Diversification Opportunities for Dave Busters and Shake Shack

0.77

Correlation Coefficient

Dave Busters  Shake Shack

Poor diversification

The 3 months correlation between Dave and Shake is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Dave Busters Entertainment and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Dave Busters 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 Dave Busters Entertainment 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 Dave Busters i.e., Dave Busters and Shake Shack go up and down completely randomly.

Pair Corralation between Dave Busters and Shake Shack

Given the investment horizon of 90 days Dave Busters Entertainment is expected to under-perform the Shake Shack. In addition to that, Dave Busters is 1.3 times more volatile than Shake Shack. It trades about -0.15 of its total potential returns per unit of risk. Shake Shack is currently generating about 0.05 per unit of volatility. If you would invest  13,073  in Shake Shack on September 12, 2024 and sell it today you would earn a total of  255.00  from holding Shake Shack or generate 1.95% return on investment over 90 days.

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

Dave Busters Entertainment  vs.  Shake Shack

Dave Busters Enterta

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dave Busters Entertainment are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Dave Busters showed solid returns over the last few months and may actually be approaching a breakup point.

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 unfluctuating basic indicators, Shake Shack disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dave Busters and Shake Shack

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

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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.