Correlation Between Western Sierra and Shake Shack

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

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

Diversification Opportunities for Western Sierra and Shake Shack

-0.79

Correlation Coefficient

Western Sierra  Shake Shack

Pay attention - limited upside

The 3 months correlation between Western and Shake is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Western Sierra Mining and Shake Shack in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shake Shack and Western Sierra 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 Western Sierra Mining 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 Western Sierra i.e., Western Sierra and Shake Shack go up and down completely randomly.

Pair Corralation between Western Sierra and Shake Shack

Given the investment horizon of 90 days Western Sierra is expected to generate 477.9 times less return on investment than Shake Shack. But when comparing it to its historical volatility, Western Sierra Mining is 5.29 times less risky than Shake Shack. It trades about 0.0 of its potential returns per unit of risk. Shake Shack is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  12,167  in Shake Shack on September 1, 2024 and sell it today you would earn a total of  1,206  from holding Shake Shack or generate 9.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Western Sierra Mining  vs.  Shake Shack

Western Sierra Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Sierra Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Shake Shack

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shake Shack are ranked lower than 18 (%) 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 Western Sierra and Shake Shack

The main advantage of trading using opposite Western Sierra and Shake Shack positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Sierra 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 Western Sierra Mining 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.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.