Correlation Between Wyndham Hotels and Shake Shack

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

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

Diversification Opportunities for Wyndham Hotels and Shake Shack

0.94

Correlation Coefficient

Wyndham Hotels  Shake Shack

Almost no diversification

The 3 months correlation between Wyndham and Shake is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Wyndham Hotels Resorts and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Wyndham Hotels 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 Wyndham Hotels Resorts 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 Wyndham Hotels i.e., Wyndham Hotels and Shake Shack go up and down completely randomly.

Pair Corralation between Wyndham Hotels and Shake Shack

Allowing for the 90-day total investment horizon Wyndham Hotels is expected to generate 2.76 times less return on investment than Shake Shack. But when comparing it to its historical volatility, Wyndham Hotels Resorts is 1.75 times less risky than Shake Shack. It trades about 0.05 of its potential returns per unit of risk. Shake Shack is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,609  in Shake Shack on September 12, 2024 and sell it today you would earn a total of  7,719  from holding Shake Shack or generate 137.62% return on investment over 90 days.

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

Wyndham Hotels Resorts  vs.  Shake Shack

Wyndham Hotels Resorts

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wyndham Hotels Resorts are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical indicators, Wyndham Hotels demonstrated 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 Wyndham Hotels and Shake Shack

The main advantage of trading using opposite Wyndham Hotels and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wyndham Hotels 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 Wyndham Hotels Resorts 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.