Correlation Between CITIGROUP and Shake Shack

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

By analyzing existing cross correlation between CITIGROUP INC 43 and Shake Shack, you can compare the effects of market volatilities on CITIGROUP 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 CITIGROUP with a short position of Shake Shack. Check out your portfolio center. Please also check ongoing floating volatility patterns of CITIGROUP and Shake Shack.

Diversification Opportunities for CITIGROUP and Shake Shack

-0.59

Correlation Coefficient

CITIGROUP  Shake Shack

Excellent diversification

The 3 months correlation between CITIGROUP and Shake is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding CITIGROUP INC 43 and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and CITIGROUP 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 CITIGROUP INC 43 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 CITIGROUP i.e., CITIGROUP and Shake Shack go up and down completely randomly.

Pair Corralation between CITIGROUP and Shake Shack

Assuming the 90 days trading horizon CITIGROUP INC 43 is expected to under-perform the Shake Shack. But the bond apears to be less risky and, when comparing its historical volatility, CITIGROUP INC 43 is 2.55 times less risky than Shake Shack. The bond trades about -0.04 of its potential returns per unit of risk. The Shake Shack is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  10,180  in Shake Shack on September 12, 2024 and sell it today you would earn a total of  3,628  from holding Shake Shack or generate 35.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

CITIGROUP INC 43  vs.  Shake Shack

CITIGROUP INC 43

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CITIGROUP INC 43 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CITIGROUP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Shake Shack

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 17 (%) 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 CITIGROUP and Shake Shack

The main advantage of trading using opposite CITIGROUP and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CITIGROUP 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 CITIGROUP INC 43 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.