Correlation Between Vistra Energy and Shake Shack

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

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

Diversification Opportunities for Vistra Energy and Shake Shack

0.68

Correlation Coefficient

Vistra Energy  Shake Shack

Poor diversification

The 3 months correlation between Vistra and Shake is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Vistra Energy Corp and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Vistra Energy 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 Vistra Energy Corp 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 Vistra Energy i.e., Vistra Energy and Shake Shack go up and down completely randomly.

Pair Corralation between Vistra Energy and Shake Shack

Considering the 90-day investment horizon Vistra Energy is expected to generate 1.28 times less return on investment than Shake Shack. In addition to that, Vistra Energy is 1.61 times more volatile than Shake Shack. It trades about 0.09 of its total potential returns per unit of risk. Shake Shack is currently generating about 0.19 per unit of volatility. If you would invest  10,321  in Shake Shack on September 28, 2024 and sell it today you would earn a total of  2,934  from holding Shake Shack or generate 28.43% return on investment over 90 days.

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

Vistra Energy Corp  vs.  Shake Shack

Vistra Energy Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vistra Energy Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Vistra Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Vistra Energy and Shake Shack

The main advantage of trading using opposite Vistra Energy and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vistra Energy 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 Vistra Energy Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.