Correlation Between Shake Shack and Legacy Education

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

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

Diversification Opportunities for Shake Shack and Legacy Education

0.24

Correlation Coefficient

Shake Shack  Legacy Education

Modest diversification

The 3 months correlation between Shake and Legacy is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and Legacy Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Legacy Education 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 Legacy Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Legacy Education has no effect on the direction of Shake Shack i.e., Shake Shack and Legacy Education go up and down completely randomly.

Pair Corralation between Shake Shack and Legacy Education

Given the investment horizon of 90 days Shake Shack is expected to generate 3.33 times less return on investment than Legacy Education. But when comparing it to its historical volatility, Shake Shack is 2.17 times less risky than Legacy Education. It trades about 0.24 of its potential returns per unit of risk. Legacy Education is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  641.00  in Legacy Education on September 19, 2024 and sell it today you would earn a total of  257.00  from holding Legacy Education or generate 40.09% return on investment over 90 days.

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

Shake Shack  vs.  Legacy Education

Shake Shack

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 11 (%) 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.

Legacy Education

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Legacy Education are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting fundamental indicators, Legacy Education showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Shake Shack and Legacy Education

The main advantage of trading using opposite Shake Shack and Legacy Education positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Shake Shack position performs unexpectedly, Legacy Education 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 Legacy Education will offset losses from the drop in Legacy Education's long position.

The idea behind Shake Shack and Legacy Education 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.