Correlation Between Shake Shack and LOCKHEED

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

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

Diversification Opportunities for Shake Shack and LOCKHEED

-0.64

Correlation Coefficient

Shake Shack  LOCKHEED

Excellent diversification

The 3 months correlation between Shake and LOCKHEED is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Shake Shack and LOCKHEED MARTIN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOCKHEED MARTIN P 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 LOCKHEED. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOCKHEED MARTIN P has no effect on the direction of Shake Shack i.e., Shake Shack and LOCKHEED go up and down completely randomly.

Pair Corralation between Shake Shack and LOCKHEED

Given the investment horizon of 90 days Shake Shack is expected to generate 2.94 times more return on investment than LOCKHEED. However, Shake Shack is 2.94 times more volatile than LOCKHEED MARTIN P. It trades about 0.17 of its potential returns per unit of risk. LOCKHEED MARTIN P is currently generating about 0.19 per unit of risk. If you would invest  12,153  in Shake Shack on September 16, 2024 and sell it today you would earn a total of  1,006  from holding Shake Shack or generate 8.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Shake Shack  vs.  LOCKHEED MARTIN P

Shake Shack

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 14 (%) 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.

LOCKHEED MARTIN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LOCKHEED MARTIN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, LOCKHEED is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shake Shack and LOCKHEED

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

The idea behind Shake Shack and LOCKHEED MARTIN P 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.